Discounting ex-US equity in late May

As a stellar US corporate earnings season wound down during the fourth week of May, investors continued to pencil in higher energy, input and capital costs for many of those companies in the months ahead. The upshot was the first collective outflow for EPFR-tracked Equity Funds since late March – recent market highs notwithstanding – and only their 12th since the beginning of last year while Bond Funds extended a run of inflows stretching back to the fourth week of 2Q25.

Day-to-day sentiment remains shackled to the perceived status of negotiations between the US and Iran to end their current conflict and reopen the Straits of Hormuz. With the current ceasefire holding, but strained on a daily basis, oil prices slipped back below $100 a barrel and both the Dow Jones Industrials and S&P 500 indexes hit fresh record highs. Measures of consumer and business confidence, meanwhile, are fragile at best.

Investors responded by taking profits from energy and commodities funds, cutting leveraged positions and their exposure to digital assets and rebuilding cash buffers. During the week ending May 27, EPFR-tracked Money Market Funds posted a fourth straight inflow for the first time since mid-March, Alternative Funds chalked up their sixth outflow so far this year and Money Market Funds absorbed $21.9 billion.

The artificial intelligence (AI) theme retained some of its allure, with AI-mandated funds pulling in another $409 million. But Data Center Funds recorded their first outflow since late 2Q25 and biggest in over two decades.

At the asset class fund level, investors pulled nearly $4 billion from Leveraged Equity Funds as the group posted its seventh outflow over the past eight weeks, Bear Funds extended their longest run of inflows since 3Q22 and Aerospace & Defense Funds their longest outflow streak since 1Q24, flows into Bank Loan Funds climbed to a 19-week high and Municipal Bond Funds recorded their second largest inflow of the year-to-date.

Emerging Markets Equity Funds

Domestically domiciled Chinese Mainland Equity ETFs chalked up their 12th straight outflow going into the final days of May and, for the seventh week running, those redemptions offset any inflows recorded by other Emerging Markets Equity Fund groups. Retail share classes saw money flow out for the sixth straight week and EM Dividend Funds extended their longest redemption streak since 1Q21.

When filtered by domicile, EM Equity Funds based in Europe posted their ninth outflow over the past 12 weeks and Japan-domiciled funds for the 15th consecutive week while redemptions from funds registered in the US hit their highest level in over 13 months.

The latest redemptions from Chinese Mainland Equity Funds came during a week when authorities cracked down on illegal overseas trading accounts. Funds with state-owned enterprise (SOE) posted their biggest outflow since early March. But there was little appetite for the ex-China theme, either, with Global Emerging Market (GEM) ex-China Funds recording their biggest outflow in over seven months.

The latest allocations data shows actively managed GEM Equity Funds maintaining their modest underweight for China while weightings for Korea and Taiwan (Province of China) stand at 20-year and record highs, respectively. Another Asian market, Vietnam, remains by far the biggest single country allocation among actively managed Frontier Markets Equity Funds.

Brazil is one of the markets that has seen the biggest increase YTD among actively managed GEM Equity Funds. But, after a strong run, Brazil Equity Funds have posted consecutive weekly outflows for the first time since early November as investors take profits and weigh the effect of a bank corruption scandal on business-friendly presidential candidate Flavio Bolsonaro’s chances in October. Allegations of corruption, and the impact those are having on relations with the US, are also hitting Mexico’s investment case. Dedicated Mexico Equity Funds have now experienced net redemptions 11 of the past 12 weeks.

EMEA Equity Funds posted another modest outflow as funds dedicated to both oil importers and exporters struggled to attract fresh money. Poland and Romania Equity Funds did pull in around $20 million apiece.

Developed Markets Equity Funds

Flows into EPFR-tracked Developed Market Equity Funds during the latest reporting period were positive for the ninth consecutive week. But the headline number was the smallest since that run began as further flows into Global, US and Canada Equity Funds were significantly offset by combined outflows of over $9.5 billion from Japan and Europe Equity Funds.

The outflows from Japan Equity Funds during the week ending May 27 were the largest in exactly a year and, as was the case then, hit funds tied to the broad, market capitalization weighted TOPIX index during a period when investors focused on the possibility of higher interest rates. Policymakers at the Bank of Japan are facing a sharp jump in producer costs tied to the energy shock delivered by the US war on Iran.

Analysis by ISI CEIC economist Jackson Chan notes that, “The latest producer price index rose 2.3% from a month earlier – the fastest pace since April 2014. The PPI surge was led by higher prices for petroleum and chemical products. Reacting to the surprisingly strong PPI, government bond yields surged. The 30-year JGB yield hit 4% for the first time since the bond was first issued in 1999. The bond market is not only reacting to ⁠inflationary risks caused ​by the Iran war. The [Sanae] Takaichi administration also looks likely to ramp up debt issuance to shield consumers. (A supplementary budget is planned for mid-June.)”

Inflation in Europe is also on the rise, and the European Central Bank (ECB) is now expected to lift short term rates next month. That will weigh on companies whose earnings growth is less compelling than their US peers, and investors continue to pull out of Europe Equity Funds which have posted outflows 10 of the past 13 weeks. During the latest week, Switzerland Equity Funds tallied their fifth outflow since mid-April, redemptions from Sweden Equity Funds climbed to a 13-week high and Geremany Equity Funds chalked up their seventh straight outflow while flows into Denmark Equity Funds hit their highest level since 1Q24 and UK Equity Funds recorded a rare inflow.

US Equity Funds took in fresh money for the ninth week running, with both domestically and foreign domiciled funds recording modest inflows that – once again – went largely to Large Cap Blend and Value Funds. Redemptions from US Equity Collective Investment Trusts (CITs) jumped to a 23-week high. To the north, Canada Equity Funds posted their 46th inflow over the past 12 months as leveraged funds posted their first outflow since early January and Canada Bear Funds hit a level last seen in early 2Q20.

Global Sector, Industry and Precious Metals Funds

In the final week of May, the total trading volume (absolute value of outflows + inflows) for the 11 EPFR-tracked Sector Fund groups dropped below $10 billion for the first time in four weeks. Five groups recorded net inflows that ranged from $105 million for Real Estate Sector Funds to $745 million for Consumer Goods Sector Funds, while six reported outflows. After experiencing consecutive weekly inflows for the first time since early March, all cyclical sectors posted a net outflow as investors pulled over $1 billion from both Energy and Commodities Sector Funds.

Redemptions from Energy Sector Funds hit a seven-week high despite a 14th consecutive inflow for those with SRI/ESG mandates. At the fund level, two funds tracking an S&P index dragged the headline number down with outflows reaching $500 apiece, while funds tracking themes of oil & gas exploration, solar, green electricity, and nuclear & uranium all featured in the top 10 funds with the biggest inflows. Solar & Wind Funds saw inflows for a fifth straight week and have seen just four weekly outflows since late 3Q25, a market receiving more attention for its role in decarbonization, from new deployment setups and AI providing paths for smarter integration.

From December into March, Commodities/Materials Sector Funds brought in consecutive weekly inflows. But in the 11 weeks since, the group has racked up seven weeks of outflows, five of which have been above the $1 billion mark. Analysis of sector exposure among dedicated Country Fund groups shows that Peru Equity Funds are currently allocating over half of their portfolios to commodities and materials plays.

Several groups have between 40% and 60% of their portfolios dedicated to technology stocks. The first four days of the latest reporting period had Technology Sector Funds positioned for an outflow of $1.4 billion, led by funds tracking semiconductors, but inflows into leveraged single stocks – tracking SK Hynix, Samsung Electronics, and Micron Technology – on the final day reversed those. However, that did little to move the needle on the net weekly inflow for all Leveraged Technology Sector Funds, which posted an outflow above $3 billion.  Korea-domiciled funds ended the week with an inflow north of $1.5 billion, while both US and Chinese mainland domiciled pulled the headline number down with outflows of $2 billion and $760 million, respectively.

Consumer Goods Sector Funds saw a second week of inflows for the first time in 29 weeks. A consumer staples and a consumer discretionary fund each attracted over $600 million, indicating a broad move into the sector, while investors exited funds with leveraged exposure to Tesla.

Real Estate Sector Funds notched a third straight inflow despite over $300 million being redeemed from all REIT Funds. Flows into US and Switzerland domiciled funds continued to see fresh money.

Bond and other Fixed Income Funds

It was hard to spot any meaningful pockets of weakness in fixed income flows during the latest week to May 27. Developed Market Bond Funds took in over $20 billion, just below their weekly average since the end of April, while Emerging Markets Bond Funds pulled in a four-week high of over $3 billion.

Investor appetite was notably balanced between Corporate and Sovereign Bond Funds. The two groups both attracted similar amounts, a sharp contrast to the previous week when Sovereign Bond Funds captured roughly $5 for every $1 committed to those with corporate mandates. That shift suggests another leg up in investors’ willingness to take on risk. But their continuing interest in high quality fixed income exposure was evident in Investment Grade Bond Fund flows, with those funds pulling in over $19 billion in the latest week.

In terms of duration, there was a clear preference for the mid-range groups. Investors favored Intermediate (leading with $7.5 billion in inflows)over Short (which followed with inflows of $6 billion)over Long Term Bond Funds (at $3.6 billion).

Turning to the Alternative Fund database tells an interesting story about flows to Convertible Bond Funds, an asset class representing over $100 billion in assets. The group tends to do better when equity markets are rising, offering an attractive conversion opportunity, and has a good return profile. Subsets include AT1 Bond Funds, which were introduced after the 2008 financial crisis to allow banks to raise capital without taxpayer bailouts and absorb losses in distress by converting to equity or written down before senior debt, and Contingent Convertible (CoCo) Bonds which garnered attention during the bank failures in 1Q23.

Convertible and CoCo Bond Funds both extended their inflow streak to four weeks. AT1 Bond Funds, meanwhile, saw their first outflow in eight weeks.

On the developed markets side, flows were dominated by US Bond Funds with over $13 billion absorbed, but Europe Bond Funds also enjoyed solid inflowsdespite investors leaving UK, Spain and Italy dedicated funds. Another $1 billion was committed to Canada Bond Funds, while thediversified Global and Global ex-US Bond Funds both took in over $1 billion.

Among Emerging Markets Country Fund groups, Chinese Mainland Bond Funds attracted a five-week high inflow of $2.2 billion. The top earning fund was a 30-year Treasury Bond, while others featuring in the top ten mentioned “market-making corporate” or “AAA Sci-Tech” in their fund name. Elsewhere, investments are returning to Russia Bond Funds with year-to-date inflows approaching $2 billion, well above their previous record year in 2020 when the group saw over $750 million flow in. The latest week’s inflow helped lift the headline number for all EMEA Bond Funds.