Author: Joel Dimmock

Global emerging markets equity funds have cut average weightings to Brazil and South Africa for the fourth straight quarter, according to the latest allocations data from fund research firm Lipper.

You can see a full interactive graphic of the allocations data here or by clicking on the snapshot below.

The average allocation to Brazil has fallen by 1.75 percentage points over the past year to stand at 11.6 percent of portfolios by the end of the April-June 2013 quarter. South Africa’s average weighting has fallen to 6.0 percent from 7.3 percent in the second quarter of 2012.

The data comes from about 400 GEM funds for which Lipper has recent allocations data. At the last count they held combined assets of $175 billion. GEM funds offer a useful gauge of investor sentiment around emerging markets as they can generally allocate money across the sector.

China and India have seen the sharpest increase in average allocations during the year in percentage points terms, even as fears of a China slowdown have gathered momentum and stocks .MSCICN have barely eked out a gain. (Full Story)

Malaysia emerges as the top pick in terms of pure percentage gains. The average allocation here grew by more than 17 percent over the year to 3 percent of portfolios, compared to 2.6 percent in Q2 2012. Most of that increase came in the second quarter of this year.

(Graphic by Vincent Flasseur)

Sanjeev Shah, the Fidelity fund manager who took over the UK portion of Anthony Bolton’s storied Special Situations fund, must wonder what it will take to get clients back on side.

Shah, a 17-year Fidelity veteran, can claim to have turned round a soft patch in performance, and is now consistently outdoing fellow UK equity funds. But the money keeps heading out.

The fund has suffered net outflows in 34 out of the last 35 months, according to estimates from Lipper. Total net outflows over the last three years are put at 1.1 billion pounds. The chart below makes the trend pretty clear.

Fidelity doesn’t comment on flows numbers at individual funds, but did not contradict the Lipper estimates when the numbers were put to them. Understandably, perhaps, the company is more keen to talk about recovering performance at the fund. You can see Lipper’s data on how the fund has performed relative to its UK equity peers in the chart below, which highlights the earlier peaks and troughs that might have startled more skittish investors. For Fidelity’s part, a spokeswoman said that the fund has now beaten 83 percent of its peers over the 5-1/2 years since Shah took over the reins.

Bolton was always going to be a hard act to follow.

He made Special Situations a cornerstone of many UK investors’ portfolios and became a darling of the investment press as assets under management at his combined fund climbed to more than 11 billion pounds at its height.

Now though, it is Bolton stomaching troubled times at the China fund he came out of retirement to run, just as his protege comes good. Fidelity can only hope the clients start to notice.

The extent of the surge to Japan by equity investors is written in sparkly 50-foot-high neon letters by the latest flows data out from Lipper.

We all know that Abenomics has, thus far, cast a spell over markets; the Nikkei is up about 80 percent since the middle of November, when Shinzo Abe first started looking like a bona fide challenger to win power. But it is still startling to see how flows into Japan have dominated investment behaviour.

In April alone, Japan equity funds and ETFs accounted for $9.1 billion of net inflows in a month when total net inflows across all sectors was just $9.9 billion. The money pouring into the Tokyo markets was also more than three times greater than the net inflows at the next best sector. Add the Japan Small and Midcaps sector as well as Asia Pacific funds (heavily weighted to Japan) and April net inflows inspired by the BOJs aggressive monetary policy easing reach $11.2 billion.

On a three month view, the figures show a similar trend, with Japan equity fund net inflows at $17.9 billion, much more than double the inflows enjoyed by the next best sector.

We’ve published our latest bouncy interactive graphic to let you explore the data yourself. It includes flows and performance data from all of Lipper’s equity and bond sectors across the last 12 months. Click on the image below to launch, or just click here if that seems too exhausting.

Well, I think we’ve successfully put to bed the idea that there’s any structural shift from bonds to equities going on (see here, here and here). Maybe time to look a little more closely at the numbers to pull out some more discrete swings in allocations.

We’ve just published the latest data on mutual fund and ETF flows from Lipper and there are, as ever, some clues. The snapshot of our interactive graphic below shows flows into and out of bond funds during March. You can click on the image to access the full graphic, or just click here.

One notable trend, and it represents a continuation from last month too, is the move away from corporate debt funds.

In fact, on a two month view, the 2,500 or so corporate debt funds and ETFs tracked by Lipper in four categories (EUR, USD, GBP and Global) show net outflows of $3.7 billion. That accounts for a little over 1 percent of the latest reported AUM at the funds in question. For euro-denominated corporate debt funds alone the rate is double that; sterling-denominated funds sit in between the two.

Talk to some of the players involved and they’re adamant there is no structural shift away from the sector. One source at a major fund firm said redemption rates – the rate of attrition expected as a rule – were steady or even marginally improved. What had happened was a switch by investors to push their ‘marginal’ money into equities instead of corporate debt. Two months’ data don’t make a trend, but we could label it a ‘mini rotation’.

Some other nuggets from among the data include a clear swing away from emerging market equities during March, with EM categories accounting for 10 of the top 25 for net outflows during the month.

This week might just have seen a significant shift in how British investors think about their role as owners of companies.

First up we had three of our largest unions teaming up behind a set of governance guidelines which they will wave noisily in the air at AGMs, but more significantly, Tuesday morning saw the first steps towards building the kind of collaborative architecture for investors envisioned by the Kay Review.

As first steps go, it’s fairly tentative (as was the first, first step). In a sparse announcement, the Association of British Insurers, the National Association of Pension Funds and Investment Management Association announced they will set up a working group to report back on how collective engagement “might be enhanced to make a positive difference.” It is a response to Economist John Kay’s government-backed report from last July, which argued funds could improve returns to savers by presenting a united front to company boards.

We’ve looked before at how difficult this will be given the diversity of outlook and motivation among investors. Significantly, Tuesday’s statement makes explicit reference to drawing in “overseas investors” who at the last count were heading towards ownership of half the UK stock market, though quite how that might work is hard to see. IMA chief executive Daniel Godfrey told Reuters he has already spent some time sounding out some of those foreign share owners, and encountered a “range of views and a range of enthusiasms.” The next step, he says, is to work out whether there’s a way to navigate past the obstacles.

The members of the working group tasked with this will be named by the end of next month and will be expected to deliver an answer in the autumn. The hope will be that they can avoid some of the issues which have hampered the ABI, NAPF and IMA’s last effort to join forces.

The IIC (Institutional Investor Committee) was — or in theory ‘is’ (it is still there in an odd kind of zombie state) — an initiative to corral institutional investors into a meaningful whole in the wake of the financial crisis. Its example will act as a warning to the working group trying to come up with an alternative.

The IIC’s first action seemed oddly to sidestep the flaws most visible during the crisis, setting up a committee to investigate rights issue fees which arrived at the not unexpected conclusion that they were… drumroll…. too high! Since then it has pretty much disappeared from the radar, knocking out ho-hum press releases at the rate of three a year and singularly failing to latch on to that new vigour among investors which inspired starry headlines during last year’s so-called ‘shareholder spring’.

The latest word is that IIC will continue to exist, even though its stated remit chimes harmoniously with this latest project, and with the conclusions of the Kay Review. It is probably fair to note that it has ‘focused’ on broad policy issues rather than on the nuts and bolts of browbeating chief executives or gathering forces to vote down a pay deal, but it also cannot be accused of leading the agenda on issues where is has got involved.

In short, it seems to lack ambition as much it lacks firepower, and this new initiative will have to make sure it falls at neither hurdle. Godfrey tells us he is “determined we should do something where we are able to follow through”; his blog post today hints at a nimble structure which is nevertheless able to do the “heavy lifting” in individual cases. Perhaps the crucial moment will come if it does succeed in gathering some support from among the giant sovereign funds and U.S. investment houses as well as investors whose outlook is more short-term. Progress convincing these players to join the game will mean there is half a chance that we might see a new Big Beast to shake-up British boardrooms.

We’re at risk of labouring this point, but there has been some more evidence that this year’s equity rally has not been spurred by a shift away from fixed income. The latest data from our corporate cousins at Lipper offer pretty definitive proof that there has been no Great Rotation, at least not from bonds to stocks.

Worldwide mutual fund flows numbers for February showed an overall move into equity funds of more than $22 billion, and a net flow to bond funds of about half that. Over 3 months it’s a similar story, with a net inflow to equities of about $84 billion while bond funds sit close behind at about $75 billion. Little wonder then that there is some evidence at least of movements out of money market funds.

In fact, maybe HSBC called it about right last week. In a note, their cross-asset strategists reckoned a pick-up in economic growth might support a ‘minor’ cyclical rotation into equities from bonds, but a longer-term structural shift between the two asset classes as part of a ‘Great Rotation’ was less likely.

You can play around with the full interactive graphic by clicking on the image below. If you have any problems, the link is here: http://r.reuters.com/ryk34t

There are a few caveats to note: these data don’t include private institutional mandates and are an extrapolation from publicly-available performance and assets-under-management figures. Also, for ease of use, it’s all in dollars; do your own maths as you go.

There are some other useful nuggets to pull from the data, not least the total failure to sustain the surge in U.S. equity inflows that hit the headlines in January. The three month numbers to end-Feb show net outflows to funds in Lipper’s U.S. equity category at more than $18 billion, while Global emerging markets funds boast the top net inflow, at close to $30 billion.

Looking at bond funds in February alone, the stand out stat looks like a move away from corporates. Euro-denominated corporate debt funds showed the largest net outflow for the month at $1.7 billion (it’s 1.4 billion in euros), but GBP corporates and global corporates are also in the top 10.

COMPETITION TIME: One last intriguing thing to note: Only four of Lipper’s equity sectors show a negative return over the three months to end-Feb. If you can guess all of them before opening up the interactive graphic, award yourself £10, redeemable at all branches of Jessops.

Much has been made of the flows into U.S. equities this month. Funds have rolled out the red carpet for a record $11.3 billion or so in net inflows over the first two weeks of the year, more when you factor in ETFs.

Just to cool the enthusiasm a little, it’s worth remembering that this comes after a torrid 2012.

Our graphic detailing Lipper’s latest estimated net flows in and out of various fund sectors shows combined outflows from U.S. equity funds and U.S. small cap funds reached a total of more than $150 billion last year. The fourth quarter alone contributed more than $50 billion of that.

To make the point more forcefully, those 12-month net outflows from the two sectors are far in excess of the rest of the top 25 worst-hit fund sectors combined. 

So there’s a fair deal of ground to catch up, and just as it makes recent inflows seem less gargantuan, that yawning gap can also be seen as succour to the bull case for equities in the U.S. and beyond (a bull case which now includes — oxymoron ahoy — permabears among its adherents).

You can view the full interactive graphic by clicking on the image below.

Of course, the glut of withdrawals from U.S. equity was a much touted trend; there are some less well-known nuggets among the Lipper data.

Notably, U.S. income funds took in a good chunk of the cash flooding out of their domestic peers, posting the fourth largest net inflow over the year. And just behind them, Swedish equity funds nudged into the top five, rewarded for a growth story that sharply contrasted with those of its euro zone neighbours.

There was clearly some hunting for returns further down the market scale too, with four regional small and midcap fund sectors making it into the top 25 for the year. And looking at the fourth quarter alone,  European small and midcap funds  pulled in a healthy $890 million, while another $440 million made its way to Asia Pacific smaller companies funds. There be stock pickers here; maybe the trampling of active management by the ETF behemoths isn’t quite a one-way street just yet.

COMPETITION TIME*: A quick look at the performance numbers for 2012 shows that only four equity fund sectors put in a negative return over the 12 months… Reward yourself with a pat on the back and a firm handshake if you can name all of them before checking.

I’ve concentrated on the equity story here. You can play around with the interactive graphic to look more deeply at bond fund sector flows and performance.

For any questions on the data, you can contact me on Twitter at @reutersJoelD or via Reuters messenger.

*No actual prize available