It was a great week for exchange traded fund industry as equity funds around the world attracted their biggest weekly inflows in over a year in response to growing confidence that central banks will support financial markets by loosening monetary policies.
According to EPFR Global Data, equity mutual and exchange traded funds experienced $14.3 billion in net inflows for the week ended Wednesday, the largest amount since March last year, the Financial Times reports.
Breaking down the flow trends, U.S. equity funds were the main drivers as investors funneled $17.8 billion into the segment, the highest weekly total in three months. The sudden interest for stock funds reflects the growing appetite for riskier assets as the world’s central banks, notably the Federal Reserve and European Central Bank, adopt an increasingly dovish outlook.
On Wednesday, the Federal Reserve held interest rates but signaled it would be open to future cuts in response to growth concerns amid a prolonged trade war between the U.S. and China. Fed fund futures prices suggested an 80% chance the U.S. central bank could cut rates by 25 basis points in the July meeting.
Meanwhile, Mario Draghi, president of the European Central Bank, hinted this week that the institution could consider expanding its €2.6 trillion bond-purchasing program to help fuel growth and reverse deflationary pressures in the Eurozone.
Additionally, Bank of Japan governor Haruhiko Kuroda indicated that they are open to extra stimulus if consumer prices consistently fall short of the BOJ’s 2% inflation target.
The data on equity fund flows was also released in a week where major U.S. benchmarks, including the Dow Jones Industrial Average and S&P 500, were pushing toward new record highs.
“The narrative of policy divergence among central banks ended with the Federal Reserve’s accommodative pivot,” Ash Alankar, head of global asset allocation for Janus Henderson, told FT. “Looking ahead, conditions reflect a ‘goldilocks’ environment with dovish central banks, continued growth and muted inflation.”
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