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April 13, 2018

Despite Geopolitical Concerns, Fund Investors Continue to Embrace Nondomestic Equity Funds

by Tom Roseen.

Shrugging off their rising concerns about increasing geopolitical issues, mutual fund (including ETF) investors continue to inject net new money into nondomestic funds (+$79.9 billion year to date through the Thomson Reuters Lipper fund-flows week ended April 11, 2018) while being net redeemers of domestic equity funds (-$24.9 billion year to date).

Net inflows into emerging markets funds (+$21.7 billion) have accounted for almost one third of those new purchases, while the diversified international fund classifications have taken in some $52.5 billion for the year so far. Lipper’s International Multi-Cap Core Funds (a true go-anywhere classification) has taken in $35.4 billion of those net inflows.

Looking at the dichotomy between flows for conventional mutual funds and ETFs, we saw for the first flows week in four that equity ETFs witnessed net inflows, taking in a little less than $6.1 billion. Authorized participants (APs) were net purchasers of domestic equity ETFs (+$5.7 billion), adding money to the group for the first week in four. For the second week in a row nondomestic equity ETFs also witnessed net purchases, this past week attracting $369 million.

In contrast, for the third week in a row conventional fund (ex-ETF) investors were net sellers of equity funds, redeeming $346 million. Domestic equity funds, handing back a little less than $1.6 billion, witnessed their seventh consecutive weekly net outflows while posting a 0.27% return on average for the flows week. Meanwhile, their nondomestic equity fund counterparts, posting a 1.10% gain on average, witnessed their fourth consecutive week of net inflows (+$1.2 billion).

Year to date, the trend is very clear: conventional fund investors are embracing nondomestic funds (injecting $47.4 billion), while they are rejecting domestic equity funds (redeeming $28.0 billion). Meanwhile, APs are following a similar trend: nondomestic equity ETFs have taken in $32.5 billion net, and domestic equity ETFs have attracted some $3.1 billion net. So, the trend is not as lopsided on the ETF side of the business, but it appears that APs still favor foreign equity investments over domestic.

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