Germany benefits as investors seek European returns

European and global ex-US equity funds flocked to Germany in record numbers in July.

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The firm, which tracks country and sector asset allocation data for global and emerging market equity and fixed income funds, says the inflows came in response to net redemptions by investors climbing to their highest level since May 2010 and from managers allocating from a position of weakness for the third straight month in June.

“Allocations for the eurozone’s strongest economy climbed to record highs as the region’s debt crisis rumbled on and the European Central Bank signaled – and duly delivered – another interest rate hike,” its latest report said.

With the fortunes of the so-called PIIGS (Portugal, Ireland, Italy, Greece and Spain) back in the spotlight for most of the wrong reasons, EPFR Global said allocations for several of these markets slid lower.

“Europe equity funds cut their exposure to Italy and Spain, with the latter’s average weighting falling to a record low, and global equity funds also trimmed their Spanish allocation,” the report said.

Outside Europe, EPFR Global said the biggest gainer was Japan as managers began to position themselves for the rebound they expected during the second half of this year when production lines disrupted by the March tsunami and earthquake reopened and reconstruction work gathered pace.

Sector-by-sector, defensive sectors again fared best with the major equity fund groups and consensus among these funds was the strongest in the consumer discretionary and materials sectors.

Going into July, EPFR Global said European equity funds favoured industrials and healthcare (14.7% and 10.5% of the average portfolio) and EMEA equity funds favoured the energy and utilities sectors (29.2% and 5%).

Although reaching a 28-month low average in the sector, Asia ex-Japan equity funds continued to favour financials at 28.73% of the average portfolio.

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