Equity fund boost may be short-lived

market_index_410Investors allocated money away from cautious money market funds and into equity and bond funds in the week ending 1 June, according to EPFR data. But the research firm warns that the gains could prove to be temporary once investors respond to disappointing macroeconomic figures from the US.

EPFR says the equity funds it surveys saw inflows of $1.7bn, ending three weeks of decline which saw outflows of $18bn.

Bond funds did better with inflows of $3.5bn, though this follows 16 consecutive weeks of inflows. EPFR says investors continue to show faith in bonds despite yields contracting and yield of the benchmark 10-year US Treasury dipping to a year-low below 3%.

But EPFR warns that worse-than-expected GDP, housing and jobs data from the US will put the brakes on equity inflows.

The research firm said investors will need to ask whether the latest data reflects “a temporary pause in the recovery due to exogenous events such as weather, higher energy prices and the earthquake/tsunami in Japan or a more ominous sign of a stalling economic recovery and resulting deterioration of corporate earnings”.

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