Another round of bricks in the wall of worry

There was a lot for investors to digest going into the final days of February. The implications of the US Supreme Court’s ruling on President Donald Trump’s tariffs. The chances of a US strike on Iran. The risks posed by Anthropic’s Claude AI for existing software business models. The possibility that the recent partial gating of a major private capital fund signals wider problems.

Against this backdrop, fund flows signaled a modest shift towards ‘risk off’ during the week ending February 25. Flows into Physical Gold and Bear Funds climbed to four-week highs, Collateralized Loan Obligation (CLO) Funds posted their biggest outflow since mid-December and redemptions from High Yield Bond Funds hit a 14-week high. Diversified exposure increased its allure, with combined flows into Global and Global Emerging Markets (GEM) Equity and Bond Funds totaling $27.3 billion, and US Money Market Funds saw over $40 billion flow in.

Investors did steer fresh money into Artificial Intelligence and Cryptocurrency Funds, commit over $100 million to both Frontier Equity and Bond Funds, and extend Private Credit Funds’ latest inflow streak.

Overall, the latest week saw EPFR-tracked Equity Funds absorb $38.1 billion and Bond Funds $16.8 billion. Balanced Funds extended their longest inflow streak since 1Q22, year-to-date flows into all Money Market Funds climbed past the $230 billion mark and Alternative Funds pulled in over $9 billion.

At the single country and asset class fund levels, redemptions from Singapore and Norway Bond Funds hit seven and 34-week highs, respectively, UK Equity Funds posted their biggest inflow since early December and Philippines Equity Funds absorbed fresh money for the 16th time over the past 20 weeks. Synthetic Funds snapped their longest run of outflows in over 16 months, Dividend Equity Funds took in fresh money for the seventh straight week and 45th time since the beginning of 2Q25, and Municipal Bond Funds pulled in another $1.5 billion.

Emerging Markets Equity Funds

EPFR-tracked Emerging Markets Equity Funds continued to enjoy strong, broadly based inflows during the week ending Feb. 25 with the headline number the second largest total seen over the past 10 months. The diversified Global Emerging Markets (GEM) Equity Funds took in another $8.8 billion, and the other major regional groups posted inflows ranging from $277 million to $5.1 billion.

Both EM Leveraged Equity Funds and EM Bear Funds absorbed fresh money and funds with socially responsible (SRI) or environmental, social and governance (ESG) mandates tallied their fifth consecutive inflow.

With China in the midst of the Lunar New Year holiday, flows to Chinese mainland-mandated funds were again subdued while GEM ex-China Funds chalked up their biggest inflow since late 1Q24. It was another strong week for Korea Equity Funds, which saw their current inflow streak hit seven weeks and $21.3 billion. Korea’s benchmark equities index, the Kospi, is up nearly 40% so far this year as investors buy into the country’s semiconductor and reform stories.

EMEA Equity Funds added to their recent run with South Africa, Israel, UAE, Romania and Poland Equity Funds enjoying above average inflows during a week when Russia’s assault on Ukraine entered its fifth year and US-Iranian saber rattling pushed oil prices higher.

For the second week running, investors focused on Latin America looked past funds dedicated to the region’s smaller markets in favor of Mexico, Brazil and Latin America Regional Funds. Retail share classes recorded inflows for the sixth straight week, the longest run since 2Q22.

Developed Markets Equity Funds

Investors continued to take a diversified approach to their developed markets’ exposure in late February, with Global Equity Funds attracting nearly five times the amount of fresh money absorbed by the next most popular group. Of the $3.1 billion that flowed into that group, Europe Equity Funds, over 90% of that total went to the two major regional groups.

Although attractive European equity valuations appeal to investors looking for alternatives to the volatile US policy environment, the outlook for European GDP growth is mixed. That is especially true of countries with significant manufacturing sectors, as economists from EPFR sister company CEIC highlighted in a recent report.

In it, they noted that “The eurozone’s economy expanded by 1.3% in the fourth quarter of last year, roughly matching its 3Q pace and extending a modest recovery. However, breaking down the factors influencing GDP in previous quarters highlights sustained export weakness driven by trade uncertainties. External demand has struggled to gain traction amid strong competitive pressure from Chinese exports and Donald Trump’s tariffs on shipments to the US…. this aggregate picture masks significant cross‑country divergence [with] growth ranging from near‑stagnation in core industrial nations to strong expansion in more service‑ or tourism-driven economies.”

The latest week saw Asia Pacific Equity Fund groups buck the trend towards diversified exposure, with Japan Equity Funds recording another week of solid inflows while Pacific Regional Equity Funds chalked up their biggest outflow since late 2Q25. In the case of Japan-mandated funds, those domiciled overseas enjoyed robust inflows while domestically based ones posted a modest collective outflow.

Foreign domiciled US Equity Funds also posted an inflow, their 12th over the past three months, as Large Cap Blend and Value Funds again underpinned the headline number. Corporate actions remain supportive, with announced buying by US companies (new cash takeovers + new stock buybacks) totaling nearly $400 billion so far this year.  The share of all US Equity Fund assets managed by ETFs continues to climb, hitting 38.8% coming into February.

Global Equity Funds, the largest of the major diversified Developed Markets Equity Fund groups, saw year-to-date inflows climb past the $100 billion mark during the latest week with ex-US and fully global funds taking in similar sums.

Global sector, Industry and Precious Metals Funds

The latest week saw investors (again) trying to get a fix on the payoff for current and planned investments in artificial intelligence (AI) and the disruption that AI will cause to existing business models. That uncertainty did not stop eight of the 11 major EPFR-tracked Sector Fund groups – including Technology Sector Funds – from recording net inflows during the week ending Feb. 25 that ranged from $163 million to $1.98 billion.

Chinese mainland-mandated Technology Sector Funds claimed the biggest share of the group’s fifth straight inflow, and US-mandated funds absorbed a little over a third of the China Technology Sector Fund total. Dedicated Artificial Intelligence Funds extended an inflow streak stretching back to early December and Software & Services Funds tallied their sixth inflow year-to-date.

While markets were rattled by the prospect of AI programs undercutting the current iterative software models, fund managers have seen writing on the wall for some time with allocations to software and services plays sliding over the past 25 months for many major groups. 

With the possibility of an escalation in the latest standoff between the US and Iran being factored into energy markets, investors positioned themselves for potentially higher oil prices by steering another $1.5 billion into Energy Sector Funds. The group’s current inflow streak is the longest since a 29-week run ended in early 2Q21. Drilling down, Nuclear & Uranium Funds have racked up inflows of $2.7 billion this year, and have seen consecutive inflows since late May, albeit one week.

Among the groups posting outflows, Financial Sector Funds topped that list with redemptions hitting their highest level since early April of last year. Accounting for half of this week’s headline number was a US-domiciled ETF while all Regional Bank Funds posted their biggest outflow in exactly a year. The sector faces multiple headwinds, from a global easing cycle that cuts into loan margins to questions about their exposure to private equity and capital risks.

Elsewhere, Infrastructure Sector Funds chalked up their 44th consecutive inflow, Telecoms Sector Funds posted consecutive weekly outflows for the first time since mid-3Q25 and flows into Healthcare/Biotechnology Sector Funds rebounded a week after the group posted its biggest collective outflow in over seven months.

Bond and other Fixed Income Funds

EPFR-tracked Bond Funds saw inflows lose momentum in late February for the first time since the third week of January. But they still took in a healthy $16.8 billion and kept alive a run of inflows that started last April. Investors did trim duration and credit risk, and flows to US Bond Funds fell to an eight-week low.

At the asset class level, Inflation Protected Bond Funds posted a fourth consecutive inflow for the first time since September, Municipal Bond Funds saw their current inflow streak hit eight weeks and $17.1 billion, Catastrophe Bond Funds posted their biggest outflow in over five months and both Bank Loan and High Yield Bond Funds saw money flow out for the first time this year. Bond Funds with socially responsible (SRI) or environmental, social and governance (ESG) mandates experienced their heaviest redemptions since early 2Q25.

Investor appetite for emerging markets exposure held up during the week ending Feb. 25, with the diversified Global Emerging Markets (GEM) Bond Funds posting their 31st inflow over the past 32 weeks. At the country level, flows into Korea Bond Funds climbed to a six-week high, Russia Bond Funds extended their current inflow streak and Chinese mainland-mandated funds tallied their sixth outflow of the year so far.

Foreign domiciled US Bond Funds experienced their heaviest redemptions since the weeks immediately after US President Donald Trump unveiled his ‘Liberation Day’ slate of tariffs in early 2Q25. But these were offset by flows into domestically based funds, with Long Term Corporate, Intermediate Term Mixed and Short Term Sovereign Funds attracting the largest amounts of fresh money.

Europe Corporate Bond Funds shaded those with sovereign mandates when it came to attracting fresh money during the latest reporting period. When it came to duration, investors gravitated to funds offering short and intermediate term exposure while those dedicated to long term (over 10 years) debt recorded their biggest outflow since the second week of October.

Flows to Japan Bond Funds rebounded, climbing to a five-week high, as investors look ahead to the Bank of Japan’s March policy meeting and take advantage of the relative bargains created by the recent selloff.

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