Investors Flee Emerging Markets Funds During The Third Quarter

by: Pat Keon CFA
Summary

Emerging markets funds have had net outflows of $10.2 billion during Q3.

The peer group has been hurt by the trade war between the U.S. and China.

The group suffered its worst weekly negative net flow in its history (-$4.1 billion) during this downturn.

Lipper’s Emerging Markets Funds peer group (including both mutual funds and ETFs) experienced net outflows of $1.1 billion for the fund-flows trading week ended Wednesday, August 28. This negative net flow marked the tenth net outflow in the last eleven weeks for the peer group during which over $11.8 billion has left the group’s coffers. As part of this slump, the emerging markets funds group suffered the worst weekly net outflow in its history (Lipper began tracking fund flows data for this group in 1993) as $4.1 billion left during the fund-flows week ended August 7. The group has recorded a net negative flow of $10.2 billion for the quarter to date putting it on pace to surpass the second quarter of 2013 (-$13.7 billion) for its worst quarterly fund flows result ever.

This peer group has been hurt by the escalation of the trade war between the U.S. and China during Q3. The rising trade tensions have caused riskier assets to fall out of favor with investors as they wrestle with recession fears in the U.S. as well as global growth concerns. The latest flare-up in the trade war occurred on Friday, August 23 as China announced new tariffs on U.S. goods and President Trump retaliated by advising U.S. companies to stop doing business in and with China. This exchange sent the equity markets into a tailspin as the NASDAQ Composite Index, S&P 500 Index, and Dow Jones Industrial Average all retreated about 3% for the day. The markets recouped approximately 1% of their respective losses during the next trading day as the situation stabilized (at least temporarily) as both sides offered olive branches and speculated that a trade deal was still possible.

The lion’s share of the net outflows (-$8.6 billion) during the third quarter for emerging markets funds have emanated from ETFs as opposed to mutual funds (-$1.6 billion). The two largest individual negative net flows for ETFs are attributable to iShares MSCI Emerging Markets ETF (EEM, -$5.6 billion) and iShares Core MSCI Emerging Markets ETF (IEMG, -$2.6 billion) while the largest net outflow amongst mutual funds belongs to GMO Emerging Domestic Opportunities Fund (-$292 million).

Emerging Markets Funds (including both mutual funds and ETFs), Weekly Net Flows ($Bil), June 19, 2019 – August 28, 2019

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.