Flows into funds in the last week have been stumbling on worries that the Euro zone might once again descend into chaos. Flows into US Total Equity funds were particularly weak last week, despite a great earnings season.The report comes a week after it was revealed that funds attracted record numbers of investment in January.
According to a Deutsche Bank AG (ETR:DBK) (FRA:DBK) (NYSE:DB)’s report covering fund flows, the earnings season in the United States was a good one. 73% of domestic companies managed to beat the estimates Wall Street had put on their earnings, while 64% of all companies managed to beat their previous quarterly earnings reports.
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Flows weakened however. The Deutsche Bank AG (ETR:DBK) (FRA:DBK) (NYSE:DB) report, which covers fund flows from Wednesday to Wednesday of each week, records that US Total Equity funds attracted just 0.1% of their total assets during the week. Last week saw those funds attract two-year record inflows. Flows into Asian funds, however, managed continued strength in the week.
Japan equity funds and Pacific equity funds attracted reasonable inflows in the period bringing their total yearly flows to 2.7% and 4.7% respectively. For the year to date, US equity funds have attracted just 0.7% of their assets in investment. Emerging market equities managed to attract inflows of 0.5%. Western European funds are up 0.6% for the first weeks of 2013.
The map below shows the three month flows on a world map.
Bond funds also saw flows that could be described as negligible during the week. US bond funds saw inflows of 0.1% in the week, while Western European funds saw outflows of 1.5% of their assets. Emerging market bond funds, like their equity counterparts, were much more attractive, obtaining net incomes of 0.6% assets during the week.
The lesson to take from the fund report is clearly stated in the DB report. Everyone is worried about Western Europe, particularly the Italian elections and Spanish political turmoil. The drop in flows also represents a cool down from the highs of last week. Investors may simply be nervous that recovery is being bet on too early.
The European political risk may be overblown currently, but it’s no wonder. The continent’s turmoil in the last two years has stifled the world economic recover and created a situation where investors are constantly worried about headline pressure from the continent. That situation is unlikely to be diffused any time soon.