The belief that the Federal Reserve is about to start tapering its quantitative easing programme caused investors to pull money from US-focused funds last week.
Fund flow data analyst EPFR Global says US equity and bond funds suffered net outflows of almost $20bn (£12.9bn) in the week ending 21 August 2013 as the likelihood grew that the Fed will slow the pace of its $85bn-a-month bond-buying scheme in the next few months.
Last week, the minutes of the Fed’s July monetary policy meeting showed members of its Federal Open Market Committee are “broadly comfortable” with starting to taper in the months ahead if the US economy continues to strengthen.
EPFR Global says: “Big institutional redemptions drove the outflows from US equity funds, 70 per cent of which were attributable to a single large cap ETF, as consensus hardened around an early start to the ‘tapering’ of QE3.
“Retail flows were also negative for the first time in eight weeks, although daily data showed redemptions moderating towards the end of the week.”
The outflows experienced by US equity funds were the highest in more than five years, while investors across the globe pulled a total of $12.3bn from equities last week.
Money continued to pour out of emerging market equity funds, which saw $1.72bn in net redemptions with Asia ex-Japan and Latin America bearing the brunt of outflows. Retail investors continued to stay away from the asset classes, having last committed money here in early April.
However, investors showed more interest in Europe with equity funds focused on the region benefiting from “solid inflows” over the week and seeing their inflow streak extend to its longest since the first quarter of 2007. UK, Greek and Spanish equity funds were the only products to attract more than $10m each over the week.
Expectations that tapering will soon begin also hit bond fund, which saw net inflows of $7.43bn. Emerging markets, US municipal and US high yield bond funds were the groups taking most of the redemptions, although European high yield funds have seen inflows for seven weeks running.