Global Investing

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.

The tumult caused by Richard Buxton’s move from Schroders to Old Mutual in March highlighted the veneration of “star” fund managers, those select few who apparently rise above the crowd to shine their light upon adoring investors.

We don’t need to dwell on Buxton’s track record (annualised return on his UK Alpha Plus fund of 13.7 percent over 10 years), but combined with Mark Lyttleton’s departure from BlackRock – his own star rather faded of late – I am drawn to ponder the funds industry’s views of, and hunger for, stellar talent.

It is attractive, and reassuring even, to believe that the people running our money are blessed with some innate skill for playing the markets, but I recently had to re-consider my own views on natural talent when talking to Matthew Syed, now a journalist and author, but previously England’s number 1 table tennis player for a decade. A competitor at two Olympic Games and winner of three Commonwealth Gold medals, Syed has some experience of being praised for his apparent natural ability.

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.

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.

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.

Is there room only for the biggest, most aggressively-marketed funds in crisis-hit Europe?

Europe’s ten best-selling funds have attracted nearly a third of net sales across bonds, equity and mixed assets so far this year, as the grey bars show in the following chart from Thomson Reuters’ fund research firm Lipper.

TEN MOST SUCCESSFUL FUNDS’ NET SALES AS A PROPORTION OF ALL SALES

The numbers — which exclude ETFs — are even more staggering if looking at at the concentration of sales into groups/companies, rather than at fund level.

Lipper has released its monthly look at fund flow trends in Europe, and as ever, it throws up some intriguing results.

August saw bond funds again dominate inflows, pulling in a net 20.8 billion euros and just a tad down on July’s record. Stocks funds continued to suffer, as British equity products led the laggards with close to 2 billion euros withdrawn by clients over the month. North American equity funds and their German counterparts also saw big outflows.

Looking regionally, the Italian fund sector continues to show some surprising strength. Net funds sales there topped the table for the second month running. You can see Lipper’s heat map of sales and AuM below:

“Asset managers are emerging from their comfortable burrow to face a battery of lights.”

Sheila Nicoll, Director of Conduct Policy at Britain’s Financial Services Authority (FSA), had perhaps been reading Kenneth Grahame before her recent speech, and her words are likely to have sent a chilly wind through the willows of the UK funds industry.

The warning “poop poop” being sounded by the regulator has been getting louder and louder. Indeed the FSA may even be traveling faster than Labour Party leader Ed Miliband, who has recently suggested that he would impose a 1 percent cap on pension charges.

(The author is Head of EMEA Research at Thomson Reuters fund research firm Lipper. The views expressed are his own.)

By Detlef Glow

The exchange-traded fund (ETF) market has shown strong growth since its inception in Europe. Many fund promoters have sought to capitalise on this, seeking to differentiate themselves from rivals and match client needs by injecting some innovation into their product offerings. This has led to a broad variety of ETFs competing for assets, both in terms of asset classes and replication techniques.

Looking at assets under management, however, the European ETF market is still highly concentrated. The five top promoters account for more than 75 percent of the entire industry. On a fund-by-fund basis the concentration is even greater.

“Wouldn’t you rather your donations achieve a lot rather than a little? Then you’ll need to get serious and proactive. If you do it wrong, you can easily waste your entire donation.”

Caroline Fiennes is not one to pull her punches when talking about charitable giving, but the more I talk to her, or read her new book – ‘It Ain’t What You Give It’s The Way That You Give It’ – the more it becomes apparent that her philosophy is not all that different from that of a professional fund manager.

No self-respecting fund manager would invest in a company just because they were asked to. A fund manager will choose to invest (or disinvest) because they believe it will help their fund perform well and that the investment fits within their investment objectives. Fiennes, who advises companies and individuals on their giving, advocates a similar approach for any donor: be clear about your objective and find organisations that have done a good job of achieving this, not just the ones that market themselves well.