Global equity funds faced huge outflows ahead of Fed decision

Investors liquidated equity funds at the fastest rate in 15 years in the week to Dec. 18, driven by caution and profit-taking in anticipation of a hawkish outcome from the US Federal Reserve’s policy meeting after a recent market rally.

According to LSEG Lipper data, investors divested a net USD 37.22 billion worth of global equity funds in the week, the largest amount for a single week since September 2009.

The Fed cut rates as expected on Wednesday and signaled fewer rate cuts and projected higher inflation for next year, prompting a sell-off in global equities after Chair Jerome Powell emphasized the need for caution.

The MSCI World index has declined more than 3% this week and is set for its sharpest weekly fall in three and a half months.

Investors offloaded a robust USD 50.2 billion worth of US equity funds, logging the biggest weekly net sales since September 2009. European and Asian funds, however, experienced USD 9.21 billion and USD 1.74 billion worth of net purchases.

Meanwhile, global sectoral funds experienced their largest weekly outflow in 14 weeks, totaling USD 2.65 billion, with the tech and healthcare sectors facing net disposals of USD 1.37 billion and USD 737 million respectively.

Global bond funds continued to attract investor interest for a 52nd consecutive week, securing about USD 2.36 billion in net purchases, albeit the lowest amount in eight months.

Corporate and loan participation funds drew substantial inflows of USD 2.01 billion and USD 1.12 billion, respectively. Meanwhile, government bond funds experienced USD 594 million in outflows, marking a third consecutive week of net sales.

Money market funds recorded about USD 51.02 billion in net sales, marking the fourth outflow in five weeks.

In the commodities sector, gold and precious metal funds saw USD 1.67 billion withdrawn, the largest since July 2022, while energy funds experienced USD 215 million in outflows.

According to data covering 29,603 funds, emerging market equities faced increased selling pressure, with equity funds recording their sharpest net outflow in about a year at USD 5.27 billion, and bond funds also seeing USD 710 million in net outflows.

(Reporting by Gaurav Dogra and Patturaja Murugaboopathy in Bengaluru; Editing by Hugh Lawson)