Money managers under the microscope
from Global Investing:
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.
Hedge fund firms are finding themselves back in demand with mainstream asset managers despite a mixed record during the downturn. Threadneedle recently reiterated its interest in acquiring a hedge fund firm whilst adding to its absolute return range with a US equity long/short fund. The rise in interest has also been apparent in F&C’s purchase of Thames River at the end of April and Aberdeen’s recent buy of RBS’s non-core assets which gave the fund manager access to alternative products.
Threadneedle has been on the prowl for something in the absolute return space since last summer, but Campbell Fleming, head of distribution, said the hedge funds business remains “a work in progress”. “We continue to look at a lot of opportunities but not many suitable businesses have presented themselves,” he told Reuters.
Hedge fund stories from the past 24 hours from Reuters and elsewhere:
After last year’s record poor performance, investors may view a warning that the quality of hedge funds could get worse with a certain degree of irony.
However, according to the Hedge Fund Standards Board’s chairman Antonio Borges, this is one of the negative effects on the industry that proposed EU laws could have.
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And in Europe's morning papers: