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Money managers under the microscope

from Global Investing:

US investors prop up emerging equity flows

U.S. mutual fund investors are ploughing on with bets on emerging market equities, according to the latest net flows numbers from our corporate cousins at fund research firm Lipper. Has no one told them there's supposed to be a massive sell-off?

August was the 30th straight month the sector has seen net inflows, and the 9th straight month of net inflows above $1 billion. Sure, there's a downward trend from the February peak, but the resilience of demand is notable given doom-laden headlines about how EM markets will fare once the Fed feels its generosity is no longer required.

Of course, the popular image of mutual fund investors is as a perennial lagging indicator for allocations trends, and the stage may be being set for a sharp turnaround this month. However, U.S. investors have already been offloading their bets on emerging debt, with funds in the sector seeing net outflows of $2.6 billion, or 7.5% of total assets, in the three months to end-August.

It may be that this is part of a trend towards international diversification in the U.S., with investors taking a longer view and a more sanguine approach to risk. But they'll need strong stomachs. Three-month performance at those U.S.-domiciled EM equity funds is at -7.7% (see chart below), while three-month net inflows are at more than $4.5 billion. Juxtapose that with the global EM equity sector over the same period, where  average fund performance is at -8.2% and net outflows are a chunky $7.8 billion. In short, investors elsewhere are pulling cash out of emerging equity funds but U.S. fund buyers seem to be going the other way.

from Global Investing:

Signs of growth bets in the fund flows

Just as Germany helps to embolden hopes for a robust recovery in Europe, a look at detailed fund flows data offers more cheer to the optimists.

I've been seeing which equity fund sectors saw the greatest net inflows during July, and then filtering the top 20 by flows relative to the sector's total assets. There's a clear winner.

from Global Investing:

Signs of growth bets in the fund flows

Just as Germany helps to embolden hopes for a robust recovery in Europe, a look at detailed fund flows data offers more cheer to the optimists.

I've been seeing which equity fund sectors saw the greatest net inflows during July, and then filtering the top 20 by flows relative to the sector's total assets. There's a clear winner.

10 years of fund industry evolution: Lipper

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“A game of two halves” is a footballing cliché in the UK, but was particularly apt for the European funds industry in 2011. The stock market falls that began in July not only ended the healthy sales activity that had started the year, but triggered a wave of redemptions that rolled through the industry. While these outflows ebbed slightly in the final quarter of the year, there were few who did not feel the cold chill of investors withdrawing from mutual funds by the year-end.

Net sales of long-term funds (i.e. excluding money market funds) in 2010 (305.8 billion euros) exceeded not just those of 2009 (257.7 billion), but also the level achieved in pre-crisis 2006 (265.9 billion). Expectations were therefore high when the first half of 2011 saw inflows of 96.1 billion euros, but this was followed by outflows of 155.9 billion, so that the year as a whole ended in the red (-59.8 billion) for only the second time in a decade (the 2008 total was -391.4 billion euros).

Are marathon runners trying to sprint?

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“The long is short. Investment choice, like other life choices, is being re-tuned to a shorter wave-length.” So stated Andy Haldane of the Bank of England in a speech last month.

If one of the key features of a mutual fund is that it is a long-term investment, then concerns that money is being managed over decreasing time horizons should be treated seriously.

Jim Saft: Monkey business

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- By Jim Saft HUNTSVILLE, Ala., March 10 (Reuters) – Patience, particularly in investing, is one of those virtues everyone praises but for which no one seems willing to pay. An investment manager given money to manage is going to do the same thing with it pretty much every time: put the money to work. This is true almost always and almost without reference to how attractive the alternatives are. Partly this is because the fund manager reasons that you would not have given him money if you wanted him to keep it sitting idle in a liquidity account, but also because most fund managers spend most of their time managing a specific kind of risk: career risk. Even if they may be personally convinced that the markets they follow do not represent good value, the decision to stay in cash is personally risky for them. People don’t get fired for trailing the index by a point or two, but they do often if they miss a big rally. That leaves most money managers with a perverse incentive; look like everyone else, take a few small bets away from the index you track and live to pay off your mortgage and fully fund your kids’ educations. It is also, I would argue, psychologically hard for primates like us to refrain from activity; big cats do well out of waiting for their moment but monkeys usually make a living through ceaseless activity. “Patience is also required when investors are faced with an unappealing opportunity set,” James Montier of fund manager GMO writes in a letter to clients that argues that no major asset class currently offers fair value, much less a margin of safety. See www.GMO.com “Many investors seem to suffer from an “action bias” — a desire to do something. However, when there is nothing to do, the best plan is usually to do nothing. Stand at the plate and wait for the fat pitch.” The baseball metaphor is apt; nothing gets less respect, historically, from the people who decide who gets to play baseball for a living than the walk. Batters who are willing to take pitches used to actually be thought of as lazy, even though recent statistical evidence indicates that the ability to get on base is highly correlated, amazingly enough, with scoring runs. So it is with investors; deciding not to act, not to participate when value is not there is both freeing and likely to lead to better returns over the long haul. That said, there is absolutely no doubt that sitting out overvalued markets is a career killer for investment professionals and the kind of tactic best discussed with one’s spouse well in advance. BILL GROSS’ BIG BET This brings us to the astounding bet currently being made by bond king Bill Gross and PIMCO, whose flagship Total Return Fund, the world’s biggest bond fund, has dumped all U.S. government-related securities, including Treasuries and agency debt. Gross took cash to 23 percent of the fund, up from just 5 percent a month ago. In the Unconstrained Bond Fund, which is given more latitude, cash is an unbelievable 92 percent. In part perhaps this reflects that Gross — rich, a brand unto himself and well along in years — is past the point of managing career risk. It also, though, reflects the extraordinary state of markets today. Quantitative easing has effectively rigged the markets by buying up huge amounts of Treasuries. This has prompted a rally in riskier assets and raised legitimate questions over who will be there to buy U.S. government debt when the QE program comes to an end on June 30. Gross argues that this will come as a shock to risk markets and Treasuries alike. If it does and PIMCO keeps its portfolio looking like it does now, Gross will have quite a fat pitch to hit with his bundle of cash. If not, well then … It all puts me in mind of Tony Dye, a legendary British fund manager who earned the nickname “Dr Doom” with his  correct analysis of the stock market bubble that popped in 2000. Dye, who was the dominant manager in a highly concentrated pension fund industry, was so convinced of the bubble that at one point he took his main fund to a zero weighting in U.S. stocks. Hilariously, Dye’s funds were so large that they distorted the index used to judge fund manager performance and many of his less convinced peers duly turned bearish too, managing their own careers. Dye, I hate to tell you, was bearish right until he was forced into early retirement in March of 2000, less than a month from the top of the market. (Editing by James Dalgleish) (At the time of publication James Saft did not own any direct investments in securities mentioned in this article. He may be an owner indirectly as an investor in a fund. For previous columns by James Saft, click on [SAFT/]) ((jamessaft@jamessaft.com; Tel: +1-256 715 1303)) Keywords: COLUMN MARKETS/SAFT

By Jim Saft

HUNTSVILLE, Ala., March 10 (Reuters) – Patience, particularly in investing, is one of those virtues everyone praises but for which no one seems willing to pay.

Trimming equities in the summer freeze…

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- Leading investors around the world barely changed their exposure to assets in August, trimming equities slightly in favour of bonds, where they loaded up on top-notch corporates, Reuters polls showed on Tuesday.

Leading investors around the world barely changed their exposure to assets in August, trimming equities slightly in favour of bonds, where they loaded up on top-notch corporates, Reuters polls showed on Tuesday.

Watch the video by clicking the link below:

http://insider.thomsonreuters.com/link.html?ctype=groupchannel&chid=3&cid=138985&start=0&end=356&shareToken=Mzo0ODRmYWMyYy1kMjgxLTRhNjMtYmRjZS1iN2ZkYmY3OTNjNjY%3D

K1 performance chart shows steady gains

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We hear German hedge fund K1 and its boss Helmut Kiener have attracted the attention of prosecutors, so it’s worth dipping into the hedge fund performance numbers to see what all the fuss is about.

Below is a chart from the K1 website showing the serene progress of Kiener’s “K1 Fund Allocation System” until the financial crisis sparked an unprecedented wobble that was quickly righted. The total return since inception though, is still comfortably above 800 percent.

USS’s enterprise

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rtr1g12yThe 23 billion-pound Universities Superannuation Scheme (USS) is boldly going where few investors are prepared to go at the moment and upping its allocation to hedge funds.

Despite last year’s record poor performance from the hedge fund industry, Britain’s second-biggest pension fund is sticking with a mission to double its allocations to hedge funds and private equity to 20 percent.

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