Flows tilting towards fixed income

With headline inflation in the Eurozone and US hitting 31 and 35-month highs, respectively, investors found themselves revisiting the discounts they had applied to future corporate earnings. The increased likelihood of higher interest rates to keep prices in check also clouds the outlook for future economic growth, another headwind for earnings and the equity valuations they underpin.

Flows to EPFR-tracked funds during the third week of May reflected this shift in thinking, with collective flows into all Bond Funds hitting their highest weekly total since December while Equity Funds recorded their sixth-lowest total so far this year. Alternative Funds absorbed $1.02 billion, Balanced Funds $1.3 billion and Money Market Funds $1.2 billion as US Money Market Funds posted a third consecutive inflow for the first time since the current fighting in the Middle East broke out.

Asset classes associated with income streams continue to fare well as the number of retirees swell on both sides of the Atlantic. Municipal Bond Funds attracted over $2.5 billion as they tallied their 46th inflow over the past 12 months, flows into Real Estate Investment Trust (REIT) Funds hit a 23-week high and Dividend Equity Funds chalked up their 66th inflow since the beginning of last year. Autocallable Funds, which use derivatives to convert equity returns into regular payments, posted their 47th consecutive inflow.

At the single country and asset class fund levels, Leveraged Equity Funds snapped their six-week run of outflows with their biggest weekly influx of fresh money since early March, redemptions from Cryptocurrency Funds climbed to a 15-week high and dedicated Chemicals Funds posted their eighth outflow during the past 10 weeks. Greece Bond Funds set a new weekly inflow record, Indonesia Equity Funds recorded their biggest inflow since mid-3Q25 and Russia Bond Funds extended an inflow streak stretching back to late October.

Emerging Markets Equity Funds

The week ending May 20 saw Emerging Markets Equity Funds post their sixth straight outflow as all four of the major regional groups and Frontier Markets Equity Funds experienced net redemptions. Asia ex-Japan Equity Funds posted the biggest outflow in US$ terms and Latin America Equity Funds in % of AUM terms.

During the latest reporting period, EM Bear and Dividend Funds extended their longest inflow and outflow streaks, respectively, since 2Q25 and 1Q21. Flows into Leveraged EM Equity Funds climbed to a 10-week high and funds with socially responsible (SRI) or environmental, social and governance (ESG) mandates posted consecutive weekly outflows for the first time since mid-January.

The redemptions from Latin America Equity Funds were the biggest since late 2Q06 and came after a period of above average inflows that peaked in mid-April. Investors have been drawn by the region’s energy and strategic mineral stories but recently focused on the more complicated domestic pictures. They pulled over $200 million from Mexico Equity Funds as the date for reviewing the USMCA, the free-trade agreement that replaced NAFTA, looms. Brazil Equity Funds tallied their biggest outflow in over 13 years during a week when an unfolding banking scandal dominated the headlines.

More attention is also being paid to the impact of the energy price shock on regional consumers. A recent report by CEIC economists notes that, “The Middle East shockwaves hitting the energy market have had an asymmetrical effect in Latin America… Ecuador (which runs a monthly price band system, and depends on imports of refined products) has seen prices surge since the end of March amid widespread fuel shortages [and] Chile, which had some of the cheapest fuel in the region before the crisis, has seen prices surge by almost 50%; the recently elected conservative president, Jose Antonio Kast, said the government could not afford subsidies.”

“Meanwhile, Brazil, Mexico and Colombia have seen little change – for now. Mexico’s Claudia Sheinbaum continues to cap diesel prices. Colombia has maintained its own price cap but plans to let gasoline prices rise as subsidies pressure the budget. And Brazil, whose own oil exports have helped replace Middle East supply, is planning a direct subsidy to gasoline and diesel users under President Lula.”

China Mainland Equity Funds saw another $9.7 billion flow out despite flows into foreign domiciled funds hitting a 10-week high. But funds dedicated to the region’s two other major artificial intelligence (AI) stories, Korea and Taiwan (Province of China) absorbed over $1.5 billion apiece. India Equity Funds, meanwhile, posted consecutive weekly inflows for the first time since early February.

Among the EMEA Equity Fund groups, Russia-mandated funds stood out as they posted their biggest inflow in over four months. Some recent comments by Russian President Vladmir Putin are being interpreted as a new willingness to seek an end to the war with Ukraine he started over four years ago.

Developed Markets Equity Funds

EPFR-tracked Developed Market Equity Funds ended the third week of May with their 18th inflow year-to-date. Investors focused their attention, and money, on US and Global Equity Funds at the expense of funds dedicated to Europe, Australia and Japan.

US Equity Funds tallied their eighth consecutive inflow during a week that started with key indexes hitting fresh record highs before the lack of progress on resolving the conflict with Iran began to bite. Flows favored Large Cap Blend and Value Funds while retail share classes extended a redemption streak stretching back over nine months.

This asset class continues to get strong support from listed companies buying up their shares, or other companies, and thereby reducing the number of available shares. According to EPFR Liquidity Analyst Winston Chua, “Corporate buying has reached $1 trillion at an increasingly faster pace in recent years. Historically, reaching this milestone took 35+ weeks. It shrank to just 29 weeks in 2025 and hit the numerical milestone in just 20 weeks in 2026 — the fastest on record. The record buying pace has been complemented by a surge in cash mergers, which have nearly doubled to $225.3 billion from this time a year ago”.

Investors seeking diversified exposure put $8 in funds with fully global mandates, which on average allocate over 40% of the portfolios to US stocks, for every $1 they steered into Global ex-US Equity Funds.

Europe Equity Funds remain out in the cold, racking up their ninth outflow over the past 11 weeks as investors penciled in higher energy prices for the region’s industrial sector and went looking for markets offering a stronger technology story. Funds dedicated to Norway did record their biggest inflow in nearly two years, but outflows were the norm for most of the other country fund groups.

Both Japan and Australia Equity Funds experienced heavy outflows, with redemptions hitting 25-week and record highs, respectively. Australia’s central bank has raised its key interest rate three straight times since the fighting in the Middle East broke out at the end of February.

Global Sector, Industry and Precious Metals Funds

Not for the first time over the past three years, flows into Technology Sector Funds overshadowed those recorded by the other major EPFR-tracked Sector Funds. The more than $9 billion absorbed by the group during the third week of May was the largest in over seven months and took their total over the past three weeks to $11.7 billion. That entirely reversed the $10 billion outflow recorded by tech funds during April.

From mid-2025 until March, Technology Sector Funds saw consecutive monthly inflows, but April marked a record-setting monthly outflow at above $10 billion. During the latest week, record – and broadly based – flows to Semiconductor Funds underpinned the headline number with Software & Services Funds absorbing $1 billion. Quantum Computing Funds, a group consisting of 13 funds with a total AuM of roughly $5 billion, continue to benefit from the current US administration’s plan to take equity stakes in multiple quantum computing companies. The latest week marked the group’s fifth straight week of inflows.

Elsewhere, four of the 11 major Sector Fund groups experienced net redemptions during the latest week that ranged from $57 million for Utilities Sector Funds to $2.3 billion for Financial Sector Funds.

Commodities/Materials Sector Funds notched a fourth outflow over the past six weeks as investors moved away from safe haven Gold and Rare Earth Metals Funds while still committing fresh money to Copper Funds. Gold prices were hit by Indian import restrictions and waning expectations of any US interest rate cuts this year.

After five consecutive weeks where over $1 billion flowed into Infrastructure Sector Funds, the group attracted half that amount during the latest week. Funds dedicated to data center construction plays pulled in another $283 million, but some headwinds are building. In response to growing protests, states across the US are testing their grid reliability, water supplies, land and workforce to understand the capacity they have host more energy-intensive data center infrastructure.

Consumer Goods Sector Funds snapped a three-week outflow streak as they took in just their third inflow of the year-to-date, and second above $500 million.

Bond and other Fixed Income Funds

Rapidly rising yields and talk of a “bond rout” did not deter investors from piling into EPFR-tracked Bond Funds during the third week of May. Collective inflows topped $30 billion for the first time since late December, with the headline number gaining momentum for the fifth week running. Flows into US Bond Funds accounted for two-thirds of that headline number and Global Bond Funds chalked up their biggest weekly inflow since June 2020.

At the asset class level, Inflation Protected Bond Funds absorbed fresh money for the 16^th straight week, flows into Municipal Bond Funds climbed to a nine-week high and Convertible Bond Funds posted their sixth inflow over the past seven weeks while High Yield Bond Funds saw flows fall to a quarter of the previous week’s total and Catastrophe Bond Funds posted their first outflow since mid-March.

The latest flows into US Bond Funds were broad in scope but favored groups offering exposure to shorter-term debt, with Short Term Sovereign, Intermediate Term Sovereign and Ultra Short Term Bond Funds inflows climbing to seven, nine and 21-week highs, respectively. Foreign domiciled funds recorded their biggest collective inflow since mid-November.

Emerging Market Bonds Funds enjoyed solid inflows that went primarily to funds with local currency mandates. At the country level China Mainland Bond Funds absorbed over $1 billion with corporate funds taking in more money that their sovereign counterparts for the first time since the final week of March.

Investors looking to Europe favored funds with sovereign mandates and limited their exposure to the UK, with redemptions from dedicated UK Bond Funds hitting a nine-week high while Europe ex-UK Regional Bond Funds posted their seventh inflow during the past two months.

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