Despite strong equity returns year to date through the fund-flows week ended April 17, 2019, investors continued to generally flee equity funds. The Shanghai Composite Price Only Index is up 34.35% YTD and the NASDAQ Composite Price Only Index posted the second strongest returns of the broadly followed indices, rising 20.51% for the same period. While taxable bond funds (including conventional funds and ETFs) have attracted some $101.3 billion YTD, equity funds have only taken in $3.3 billion.
Fund investors appear to be heeding the call by some analysts to sit on the sidelines—citing slowing global growth, declining company profitability that may play out in the Q1 reporting season—which just began in earnest this week—and concerns over U.S./China trade negotiations. However, on Wednesday, April 17, Chinese government data showed the country’s economy grew at a brisk 6.4% in Q1 2019, slightly beating analysts’ expectations.
Interestingly enough, though, and despite concerns of the second largest economy showing signs of cooling, fund investors continued to pad the coffers of China Region Funds. In fact, China Region Funds have attracted net new money over the last two years, taking in $335 million in 2017, $4.9 billion in 2018, and just a little less than $2.0 billion YTD through the week ended April 17. The average China Region Fund returned 24.39% YTD.
While many investors might find the China Region Funds appealing because of the GDP growth rate and recent returns, most are making concerted bets in a related, but more diversified Lipper classification: Emerging Markets Funds. YTD, the Emerging Markets Funds classification took in $19.7 billion of net new money, attracting the largest net inflows of any equity classification in the U.S. fund and ETF universe and posted returns of 13.93% YTD.
The next largest attractor of investors’ assets was Lipper’s S&P 500 Index Funds classification, taking in $15.3 billion, followed by the Multi-Cap Growth Funds classification, which drew a YTD sum of $14.0 billion. Emerging Markets Funds took in $13.9 billion in 2016, $40.9 billion in 2017, and $12.6 billion in 2018.
iShares Core MSCI Emerging Markets ETFs (IEMG) attracted the largest sum of net new money YTD, taking in a little shy of $5.2 billion, followed by iShares MSCI Emerging Markets ETF (EEM, +$2.5 billion) and Vanguard Emerging Markets Stock Index ETF (VWO, +$2.3 billion).
While the average U.S. diversified equity fund posted a YTD return of 15.86%, the domestic equity fund universe (including conventional funds and ETFs) handed back some $10.9 billion YTD and has experienced net redemptions in each of the last four full years: 2015 (-$129.8 billion), 2016 (-$87.3 billion), 2017 (-$44.8 billion), and 2018 (-$52.1 billion). Meanwhile, U.S. baby boomers continued reallocating their core and satellite portfolios away from their heavily U.S.-focused fund holdings into fixed income, international, and alternative investments.
