Emerging-market funds end quarter on a high: EPFR

Cautious optimism about Japan’s recovery, the strength of the US economy and the possibility of a negotiated exit for Libyan leader Muammer Gaddafi helped the EPFR Global-tracked Emerging Markets Equity Funds end the first quarter of 2011 with their highest weekly inflow, $2.6 billion, since the first week of January. Between these bookends, however, this fund group endured its roughest quarter since investors pulled $25.6 billion out of them during the third quarter of 2008.

The opposite was true for Developed Markets Equity Funds. Although concerns about the impact of higher energy prices on inflation, interest rates and growth sapped their momentum in March, they were still able to celebrate their best start to a year since they absorbed $63.3 billion during the first quarter of 2006.

EPFR Global-tracked Emerging Markets Equity Funds ended March by posting only their second week of inflows since the second half of January, with both Asia ex-Japan Equity Funds and the diversified Global Emerging Markets (GEM) Equity Funds snapping nine-week outflow streaks and EMEA Equity Funds posting their biggest inflow since the week ending December 12, 2007. Flows into EMEA Equity Funds, the only major emerging markets equity fund group to post inflows during the quarter, continue to be driven by enthusiasm for Russia’s commodities story and the fact it is the world’s largest oil producer outside the West Asia and Africa. Russia Equity Funds have taken in fresh money all but two of the 26 weeks since the beginning of the fourth quarter of 2010, absorbing just under $5 billion during that run.

The other BRIC (Brazil, Russia, India and China) markets and funds that play this theme have not fared so well. Investors have tended to focus on efforts to control rising prices, rather than the growth that is helping fuel that inflation. China’s restated commitment to rebalancing its economy towards domestic consumption has, however, helped Greater China Equity Funds regain some lost ground, with inflows hitting a 12-week high going into April.

Latin America Equity Funds ended the quarter by recording outflows for the 11th consecutive week, although the sentiment towards the region’s biggest market shows some signs of thawing, with Brazil Equity Funds posting inflows for the first time since the second week of January, as evidence that fiscal discipline is beginning to have an effect brightened the outlook for interest rates.

US Equity Funds led the way, in dollar terms, with broadly based inflows across all capitalisations and investment styles that snapped a two-week losing streak. Retail investors committed fresh money for the first time since the third week of February, with actively managed funds — which suffered net redemptions in the excess of $80 billion last year — accounting for a quarter of the total inflows. Canada Equity Funds also enjoyed another strong week of inflows.

Europe Equity Funds eked out very modest inflows for the week as investors waited to see how Portugal’s political situation, the latest financial sector “stress tests” and the latest inflation numbers played out. Netherlands Equity Funds posted their biggest inflow in over seven years and Germany Equity Funds took in fresh money for the 11th time year-to-date.

Meanwhile, flows into Global Equity Funds were again positive as this fund group wrapped up its best start to a year since it took in $31.6 billion during the first three months of 2007.

Pacific Equity Funds, the other major diversified fund group that invests primarily in developed markets, posted outflows for the seventh time in the past eight weeks.