US Mutual Funds Flows Update: Investors Still Favouring International Equities

As it has been a while  since I have posted something and my broken arm is no longer a valid  excuse , I thought I would provide an update on  trends  in US mutual funds flows. To my surprise, bearing in mind the current geopolitical risks,  there has not been much change over the last few weeks. US investors have held onto  their preference for international equities whilst staying shy from the US stock markets. Also the trend of inflow into bonds   remained despite growing expectation of the Fed becoming more hawkish down the line. The map below shows the T-stats of the inflow/outflows across different time periods.


Clearly the dovish tone adopted by the Fed  has helped both the trend in equities and also bonds.  The question is how long  can this last ? Clearly the strengthening  observed in the US job market demonstrates that significant growth has rooted. Down the line this will create an issue for the fed, as managing rate expectations  whilst turning away from a dovish stance may prove challenging.  To me the most interesting point of all  is how US investors voted with their money. As can bee seen from the below charts they have stayed well away from US equities whilst investing in Foreign equities. In fact out of the US$ 133 bn invested in US mutual funds  44 %  (US$ 59 bn) went into  foreign equities  so far this year, whilst  US$ 5bn came out from US Stocks funds.

cumulative flows  distribution inflows 2014

As said in my previous posts I believe that what we are seeing could be a good explanatory variable as of  why the dollar has been so weak and particularly against the EURO despite the monetary expectation in Europe and the US. Bearing in mind the current market positioning and central bank flows it may well be that the  EURUSD is currently undervalued….