Q1/08:US100 billion pulled out of Equity Funds

FT.com: Investors worldwide pulled close to $100bn (€63.3bn) out of equity funds in the first three months of this year – a record shift that accelerates a longer-term trend away from US and western European stock markets. Equity funds suffered outflows of $98bn in the quarter ending March 28, according to Emerging Portfolio Fund Research, which tracks retail and institutional flows. The funds had inflows of $19bn during the same period last year and inflows of $49bn in the same period for 2006.

EPFR said the outflows were because “the credit squeeze linked to the US subprime debt mess weighed on investor confidence and global growth”. The outflows also accelerate a trend for investors to put their money either in ultra-safe cash options such as money market funds, or into riskier markets and high-fee products such as hedge funds. They are abandoning the middle ground of mainstream equity and fixed income funds, especially in the developed markets.
Investors pulled $70bn from US, Japan and Western Europe funds during the quarter, compared with inflows last year and in most previous years.

Funds enjoying inflows were nearly all focused on Taiwan, Russia, the Middle East and Africa. Emerging markets funds as a group had outflows of $20bn, compared with a small outflow of $1.6bn in the same period last year. Money market funds continued to see record inflows during the first quarter, adding another $140bn to reach record assets of $3,500bn. The funds are running well ahead of last year’s record $240bn in inflows.

Brad Durham, managing director of EPFR, said: “It is clear there is a huge amount of cash on the sidelines to be deployed when global markets stabilise.” Commodity funds also enjoyed inflows, of $3bn, three times the level of last year.

The big long-term flows from equity funds, which have long been the mainstay product of the asset management industry, is resulting in growing urgency among fund management companies to find new strategies and products.More than half the 25 largest mutual fund firms in the US had outflows in the first two months of this year, according to data from Financial Research Corporation. Fidelity, Barclays Global, Franklin Templeton, State Street and Legg Mason were the main losers. The FRC data, which are not yet available for March, exclude money market funds.

US stock funds fell by close to 9 per cent during the quarter, the biggest drop in five years, according to Bloomberg data. The fall was more than the Standard & Poor’s decline of 7.4 per cent during the period.

Several well-known managers, including Legg Mason’s Bill Miller, have suffered outflows in recent months as they had stakes in financial services firms badly hit by the credit squeeze.

For the record, the fall for the Asia-Pacific/US/UK markets for the 1st Quarter are as follows:-

1) Shanghai (-34%)
2) Bombay (-22.5%)
3) Nikkei (-18%)
4) Hang Seng (-18%)
5) KLCI (-14%)
6) STI (-13%)
7) FTSE (-12%)
8) Jakarta (-11%)
9) S&P500 (-10%)
10) Kospi (-10%)
11)Dow Jones (-7.6%)

Why did we fall more than Dow Jones?? Are we the ones having subprime mess??