China the first wall investors hit in 2016 – EPFR data

As was the case in early 2015 mutual fund investors tip-toed rather than sprinted into the New Year. Their caution was quickly justified as another spasm in Chinese equity markets rippled through global stock exchanges.

During the week ending Jan. 6 EPFR Global-tracked equity funds saw $8.8 billion pulled out, the most since the first week of September, while bond funds absorbed a net $3.2 billion and $7.8 billion was redeemed from  money market funds as redemptions from US funds offset flows into Europe money market funds that hit a 13 week high.

In keeping with the overriding theme for 2015 fund groups dedicated to markets underpinned by quantitative easing (QE) programs fared best, with Europe and Japan equity funds both attracting around $1 billion and flows into Europe bond funds hitting a five week high.

At the asset class level convertible bond, dividend equity and bank loan funds extended their current outflow streaks to seven, nine and 10 straight weeks respectively while total return bond funds posted inflows for only the third time in the past seven months.

Municipal bond funds absorbed fresh money for the 16th week in a row, taking their inflow tally since mid-September close to the $10 billion mark.

The pace of redemptions from EPFR global-tracked emerging markets equity funds slowed during the second half of December as investors took comfort from the cautious language that accompanied the US Federal Reserve’s first interest rate hike in over nine years.

But this asset class ran into fresh turbulence in early January as China’s equity markets sold off, triggering so-called circuit breakers, ahead of another devaluation of the renminbi.

China equity fund flows for the week were, however, positive as this fund group ended a nine week run of outflows.

Local currency flows to domestic ETFs from Jan. 5 drove the week’s modest inflows, a pattern consistent with official efforts to support the market.

Among fund groups dedicated to second tier emerging Asian markets Thailand equity funds stood out.

Although, commitments fell well short of the previous week’s record setting inflows, they extended a winning run that extends back to mid-October.

But investor enthusiasm for Thailand is running ahead of diversified fund managers: GEM and Asia ex-Japan equity fund allocations for this market are still off their 2Q13 peak and, in the case of the latter, are close to a five year low.

Redemptions from US equity funds hit a 17 week high in early January, more than offsetting solid flows into Europe, global and Japan equity funds, as EPFR Global-tracked developed markets equity funds stumbled out of the gate for the second year running.

Large Cap ETFs  experienced the heaviest redemptions among US equity fund groups during a week when only mid cap blend funds managed to attract fresh money and funds managed for value outperformed their growth counterparts across all capitalizations.  Retail investors were net redeemers for the ninth straight week and 50th time in the past 53 weeks.

Europe equity funds have seen retail commitments five of the past six weeks as investors continue to buy into the Eurozone’s modest recovery and the tailwind provided by the European central bank’s QE program.

While willing to back the region, investors steered clear of most dedicated country fund groups with Italy equity funds recording their biggest outflow since mid-4Q14.

France equity funds did record their fifth straight week of inflows.

EPFR Global-tracked bond funds opened 2016 with their biggest inflow since mid-October, snapping a four week outflow streak along the way, as volatility in global equity markets encouraged mutual fund investors to revisit fixed income groups they had pulled out of ahead of December’s US interest rate hike.

Among the fund groups benefiting from this reappraisal were Total Return Bond Funds , which enjoyed a rare week of inflows, and Emerging Markets Bond Funds which recorded their biggest inflow since early May.

Not surprisingly, fixed income fund groups with an equity component struggled to attract fresh money. Balanced funds, which invest in both equity and fixed income, started the year by posting an outflow. So did convertible bond Funds.

Flows into Europe bond funds rebounded, ending a four week run of net redemptions, helped by record setting inflows for Norway bond funds.

At the asset class level Europe corporate bond funds posted inflows for the first time since early December with intermediate term the preferred duration.

Emerging markets corporate bond funds were not able to snap their outflow streak, which stretches back to mid-May, but emerging markets bond funds overall posted back-to-back weekly inflows for the first time in seven months.

At the country level Thailand bond funds picked up where they left off in 2015 when they smashed their full year inflow record.