Global Navigator | Investors search for the eye of the storm

It was a stressful week for markets. The energy shock deepened as Houthi attacks on Saudi Arabia pushed Brent oil prices above $110, while tanker attacks spread beyond the Strait of Hormuz into the Gulf of Oman. The sustainability of AI or concerns over how AI spending is being financed, and whether it will pay off, had investors fretting. US and French leaders clashed over the causes for France’s street unrest. Expectations remained on the Fed holding this month and raising rates again by 25 basis points in December, though Warsh was not expecting the resilience the global economy is currently showing. And Trump waived sanctions and tariffs on Russia under the Graham Act, heightening his rift with Kyiv.

Liquidity investors have shown some of the uncertainty, as Money Market Fund flows teetered between positive and negative territory for a seventh straight week with the latest inflow reaching $28.8 billion. As EPFR Director of Research Cameron Brandt noted, “Going into the fourth quarter, the global backdrop for Money Market Funds (MMFs) remained supportive. Geopolitical, political and fiscal risks prompted investors to cut their duration and liquidity risks while major central banks hiked short-term interest rates – the bedrock of MMF returns – in the face of rising inflation.

October did start with all Money Market Funds posting their biggest collective weekly inflow since 1Q20. But that inflow was preceded by the third-largest monthly outflow of the current decade [or fourth-largest on record since EPFR started tracking these funds in 2007] and was followed by another $53 billion worth of net redemptions. This reflects the current reality: that, despite a favorable investment climate, overall flows to these funds have plateaued. September saw the group’s biggest outflow since the first month of 2022 and contributed to its biggest quarterly outflow in over four years.

Flow data for the third quarter show investor appetite for US exposure still remains strong, with US Equity and Bond Funds absorbing a combined $261 billion, but US and other major developed markets Money Market Funds groups were conspicuously absent from the quarterly rankings. In relative (% of AUM) terms, however, five of the groups ranked in the top 25 – two of which appear in the top three – are emerging markets liquidity fund groups.

At the single country and asset class level, investors turned their attention to the major emerging and developed Asian markets during the week ending October 21. Flows into Alternative Energy Funds – majority of which have benchmarks tracking the price of oil and gas – stayed afloat as flows into Brent Oil Funds jumped to a 30-week high and offset the sixth straight week of outflows for WTI Oil Funds. On the tech front, a whopping $12.4 billion flowed into Semiconductor Funds while flows into Artificial Intelligence and Data Center Funds have not yet been dented.

Overall, Equity Funds took in another $55.5 billion and Bond Funds absorbed over $12.1 billion, whileinvestors pulled $1.13 billion from Balanced Funds, their first outflow over the past 13 weeks and just their 10th in the year-to-date. Alternative Funds reverted to positive territory by absorbing over $3 billion, bringing their 2H26 net total to $75.5 billion.