Editor's Note: Below is a brief excerpt from today's Early Look written by Macro analyst Ben Ryan. Click here for a FREE month of the Early Look.
For background reading on why we're bearish on Europe click here and here.
In our Chart of the Day we focus exclusively on the net flow of funds in developed market international equity mutual funds. Both developed and emerging market mutual funds have experienced steady positive flows this year.
In the U.S., the equity mutual fund outflows are structural in nature, but based on the data, the “passive” story is harder to craft for international equity flows. Picking apart the 3-year flow to developed market equity mutual funds ($MM):
- 2015: $97,629
- 2016: -$20,318
- 2017 YTD: $42,856
There is a clear momentum in developed market equity mutual fund flows, which we believe has everything to do with past performance and the economic recovery in Europe.
In every month this year except March, developed market mutual fund flows have been positive. Aside from the rearview recovery in the Eurozone economy, since the beginning of 2015 the DAX is sitting on +730 bps of outperformance vs. the S&P 500, and net cumulative developed market mutual fund flows over this period totals $120Bn (this “developed” bucket does not isolate Europe specifically which is a key consideration).