Investment Flows Week One 2011

At the end of Dec ICI reported the first inflow into US equity funds in several months. EPFR is reporting that flows into US equities may have continued into the week ending Jan 5. It reported $3.75 bln went into US equity funds. This is greater than the $3.38 bln that EPFR reports went into emerging market equities. Another $385 mln it says went into EM bonds. US bonds funds continue to see some unwinding of the large inflows recorded since the beginning of the financial crisis. EPFR lastly reports that flows into Latam were particularly strong, while there seemed to be a more cautious stance toward China, which it says continues to be a drag on flows to some Asian funds.

We understand that many fund managers are under-weight US equities. And many Americans have been chasing the better returns offshore. Yet we suspect that may change. The healthier growth prospects in the US compared to Europe and Japan may encourage more of the new 401k equity funds to stay at home. Moreover, in terms of chasing returns, the US S&P did outperform China and Brazil, Hong Kong, Taiwan, Australia, New Zealand, and many European bourses. A re-balancing of portfolios, based on last year's performance and this year's growth prospects could be a potential support for the greenback.