Fund Buyer Index

Latest Research

Quarter 3 - 2015

– For the last seven quarters we have spotted an unusual relationship between US equities, European equities and absolute return products.

– Over that time period, attitudes to European equities have been strongly correlated to absolute return products, while US equities have been strongly negatively correlated to both.

– This is also reflected in fund flows, in other words, when people sell out of US they buy Europe and absolute return.

– This trend became stronger over time, with almost perfect correlations (ranging from 0.85 to 0.99) for the year up to Q2 2015.

– It has only changed in the last data point, when we’ve seen both asset flow and attitude improvement in all three strategies.

Do you recognise this behaviour in your own portfolio construction? Has a negative outlook on US equities tended to push you to alternatives or European equities? If so, why? Please write to dylan.emery@lastwordmedia.com to let us know and we will investigate further.

FUND SELECTOR SENTIMENT SINCE JAN 2014

FUND FLOWS SINCE JAN 2014 (€bn)

– At first glance you will notice that there is a lot more money in US-domiciled funds with net flows of over $800bn in passive equity funds in the past two and a half years alone. The equivalent figure for Europe-domiciled funds is roughly $70bn.

– More often than not, fund managers and fund selectors tend to agree on where they think the markets are heading. Not so, however, when it comes to the US and Japan.

– Prior to 2015 fund selectors had roughly the same views on the US and Japanese equity markets. Then in 2015 it diverged.

– As you can see from the top graph, the net % of fund selectors looking to buy more Japanese equities rose then fell, while attitudes to US equities fell then rose – close to perfect negative correlation.

– The views of fund managers, on the other hand, have been very different. They have been consistently positive on Japan, while the prediction on US equity performance climbed slowly until the start of 2015 and has since collapsed.

– So at exactly the time that fund selector outlook on the US is improving, the fund managers have rarely been so negative on the market.

– The difference in attitude to Japan could be explained by portfolio construction issues – when a fund selector moves assets out of the US, it has to go somewhere – on average, all the other asset classes will do better.

– But there is still a direct disagreement in the direction of US equities – next issue we will get an indication of who is right.

US EQUITY VS JAPAN EQUITY: FUND SELECTOR SENTIMENT

US EQUITY VS JAPAN EQUITY: FUND MANAGER PREDICTIONS

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