Colombian AFP pension managers withdrew USD 61 million in assets from cross-border funds and ETFs in March as they soured on money-market funds but warmed to emerging markets equities.
The AFPs finished March with USD 16.8 billion invested in cross-border funds and ETFs, 98% of which was in equities. During the first quarter, the AFPs yanked USD 597 million from cross-border funds.
The move deeper into emerging-markets equities in March came despite rising jitters about the asset class. Credit Suisse cautioned in a March 26 note against overly aggressive wagers on emerging-markets equities.
“Growing evidence for the US economy entering a late-cycle stage of growth remains one of our principal concerns surrounding the emerging equity investment case,” the bank said, citing an inversion of the yield curve on three-month to 10-year US Treasuries.
“A US yield curve inversion has typically preceded a US recession by an average of 12 months over the past 50 years,” Credit Suisse warned. “We find that EM equity performance is impacted negatively both on an absolute and relative (to developed equities) basis.”
Putting cash to work
The panorama for equities turned positive during the first quarter after a dismal finish to 2018. The S&P 500 rose 1.8% in March for a quarterly gain of 13% — its best first quarter in over 20 years. This encouraged investors to wade back into the market.
Also, since March, a regulatory change led to money of undecided clients being routed straight into aggressive risk portfolios rather than requiring that pension savings from clients who hadn’t picked one of three standard model portfolios be automatically placed in moderate risk portfolios. This could be shifting more Colombian pension savings into equities.
The AFPs pulled USD 370 million from money market funds in March, putting that money to work mostly in emerging market equities. At the end of the quarter the pension managers only had USD 162 million still parked in money-market funds.
At the same time, AFPs injected USD 325 million into emerging-markets equity funds in March, bringing total AUM to USD 4.9 billion. Emerging markets equity was the AFPs’ top allocation with a 29.6% market share.
Vanguard FTSE Emerging Markets ETF led inflows in that category, with USD 447 million entering the fund. Emerging-markets-equity funds rose, on average, 1.5% in March.
In January, the US Federal Reserve signaled a pause on rate hikes. That pause was seen as positive for emerging markets assets. Investors from emerging markets themselves have been particularly inclined to view those assets with optimism.
The AFPs also returned to Latin American equity funds in March, allotting USD 145 million to the category for USD 1 billion in total assets and a 6.4% market share. And they set aside USD 17 million for global equity, raising their exposure to USD 1.1 billion.
North American equities, though, saw little interest from the AFPs, despite strong index gains. The AFPs took USD 43 million out of the funds in March, bringing quarterly withdrawals to USD 266 million, for USD 4.4 billion in AUM and a 26.4% market share.
Market leaders
Among top brands, iShares gained USD 57 million in March, giving it USD 7.8 billion under management and a 46% market share.
Number two Vanguard ended the month with USD 2.5 billion in AUM, USD 484 million more than in February, and a 15% market share.
State Street edged into third place after accumulating USD 56 million for USD 743 billion in AUM, giving it a 4% market share and displacing JP Morgan for third place.
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