Fund Flows: Russia still the only positive in a sinking asset class
Posted by Chris Weafer on Friday, 18 February 2011 09:31 | Published in Chris Weafer's Investor Notes-
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By Chris Weafer
Chief Strategist Uralsib Group
Continuing preference for Russia. For the fourth week in a row investors have transferred money from emerging market (EM) funds to developed market (DM) equity funds. But, while the trend in the overall EM asset class is negative, Russia funds have again, for a fifth straight week, attracted new money while the other major country funds have reported redemptions. Unfortunately, even as investors continue to show a preference for increased Russia exposure, the scale of redemptions in other EM funds means that fund managers still had to slightly cut Russia allocations last week.
Growth bias shifting to the US. The weekly funds flow report from EPFR Global shows that, for the week ended Wednesday, investors withdrew a net $5,441 mln from all EM funds. That was the fourth straight week of net redemptions and compares with a withdrawal of $3,028 mln the previous week and $7,034 mln the week before that. A total of $18.5 bln has now been transferred from EM to DM funds since mid January, with most of that going into US equity funds. The major concern is that growth in developing economies may face downgrades as inflation increases, and forces up interest rates, while US economic growth is more likely to see growth upgrades this year.
Russia funds have taken more in six weeks than the previous six months. For the fifth week in a row, Russia funds are alone amongst the big EM country funds to report net inflows. Last week, Russia funds took in $169 mln directly, which is equal to 0.9% of the assets under management in the survey group monitored by EPFR Global. That positive run of inflows now stretches back to late November. Year to date, Russia funds have attracted $1.8 bln of new money and that surpasses the total $1.3 bln taken in for the whole of the 2nd half of last year. Russia’s inflow compares with a net redemption of $295 mln reported for China funds, $252 mln taken from Brazil funds and $154 mln from India funds. Turkey funds also reported net redemptions, totaling $40 mln last week.
Net aggregate outflows. Unfortunately the picture is not as favourable as it first appears. For while Russia funds received $169 mln directly, Russian funds have had to share in the $2,927 mln redeemed from EM Balanced funds and the $231 mln taken out of BRIC theme funds. That is partially offset with Russia’s share of the $58 mln invested into Emerging Europe funds and the $5 mln invested into EMEA regional funds. On an aggregate basis, it means that Russian funds suffered a net allocation loss of $51 mln for the week to Wednesday.
ETF sourced flows increased. Of the $169 mln invested into Russia funds last week, $135 mln, or 80%, was via ETF purchases. That compares with a 62% share the week earlier. Year to date, 57% of the $1.8 bln invested directly into Russia funds is via ETFs. It was over 90% in December.
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