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August 17, 2018

Emerging Markets Funds Still Attracting Net New Money

by Tom Roseen.

Despite headline news focusing on the tug of war between the U.S. and China concerning trade and the recent exacerbation of Turkey’s currency crisis, mutual fund and ETF investors continued to pad the coffers of emerging markets funds for the fund-flows week ended August 15, 2018. The emerging markets macro-group attracted some $360 million net for the fund-flows week despite posting a poor return for the week. For the year-to-date period the macro-group attracted $15.5 billion net.

The emerging markets funds macro-group consists of four Thompson Reuters Lipper classifications: China Region Funds, Emerging Markets Funds, India Region Funds, and Latin American Funds. After a rocky 2017 India Region Funds has witnessed the largest net redemptions for 2018 to date, handing back some $876 million, bettered by Latin American Funds (-$585 million).

However, even after President Donald Trump fueled another round of trade worries, characterizing the European Union and China as currency manipulators and criticizing monetary policy both in the U.S. and abroad, investors continued to inject net new money into China Region Funds (+$2.6 billion YTD) and Emerging Markets Funds (+$14.4 billion YTD). Year to date from a return perspective China Region Funds suffered an 11.20% loss.

Ignoring the recent steep performance declines, for the flows week investors injected net new money into the Emerging Markets Funds classification, which witnessed net inflows for a sixth consecutive week. The average Emerging Market Fund, declining 10.95%, was able to mitigate performance losses slightly better year to date than its China Region Fund counterpart.

Of the four Lipper classifications making up the emerging markets fund group, India Region Funds suffered the largest net redemptions year to date, handing back net money for 26 of the last 27 weeks. However, the classification, suffering a 7.26% YTD decline, mitigated losses significantly better than its three cousins. The large swings in performance have kept many U.S. investors at bay.

The strengthening U.S. dollar has been a strong headwind for emerging markets funds. Threats earlier in Q2 of the U.S. extending the steel and aluminum tariffs on our NAFTA trading partners; the volatility in commodity prices; and the presidential elections in Mexico, Columbia, and upcoming in Brazil have added to the political uncertainty and weighed on Latin American Funds. Year to date the Latin American Funds classification, posting an 11.45% decline, has suffered the largest performance decline of the group. Latin American Funds has recently witnessed five consecutive weeks of net redemptions.

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