Inflationary Concerns And A Broader Market Rally Drive This Month’s Flows To Date

Despite the Federal Reserve’s general stance that inflationary pressures will only be transitory, over the last few months signs that the economy is heating up have caused investors to take some of their hard-won profits off the table, pressuring the large-cap, growth-oriented, and stay-at-home stocks. Investors have been rotating out of the high-flying issues and picking up out-of-favor, value-oriented, interest-rate sensitive, and in some cases, international issues.

While for the month of May through the Refinitiv Lipper fund-flows week ended May 19, mutual fund and ETF investors have injected $10.3 billion into equity funds (including ETFs), there have been some investor withdrawals. Sector-technology funds (-$4.9 billion), mid-cap funds (-$2.6 billion), and large-cap funds (-$2.1 billion) have experienced the largest net redemptions of the macro-group.

The primary attractors of investors’ assets on the equity side so far this month have been international equity funds (+$7.3 billion), sector-other funds (+$4.8 billion)—comprised of commodity-related and consumer-focused funds—sector-financial/banking funds (+$3.9 billion), equity income funds (+$3.6 billion), and gold and natural resources funds (+$1.0 billion).

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On the international equity side of the equation, investors have embraced some of the regions that didn’t rally to the extent of their U.S. counterparts over the last year and perhaps appear to be a little less lofty in price, padding the coffers of International Multi-Cap Core Funds (+$3.3 billion), European Region Funds (+$2.8 billion), and Emerging Markets Funds (+$2.1 billion).

Supporting the notion that rotation is being driven by a move to out-of-favor issues, a broader market rally, and inflationary concerns, Basis Materials Funds (+$2.3 billion), Commodities General Funds (+$1.5 billion), Commodities Precious Metals Funds (+$941 million), and Consumer Goods Funds (+$608 million) have been the primary attractors of net new money in the sector-other funds space.

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