In Conversation With EPFR's Cameron Brandt

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00:00Talking about fund flows because this is significant for equities, for debt and of course the large

00:05India piece, we have Cameron Brandt, Director of Research of EPFR joining in. Cameron,

00:11good morning. Thank you very much for taking the time out to talk to us.

00:15Let's start with where money is going. Is it going into U.S. equities? Is it going

00:21into emerging markets? Where is the tide flowing?

00:25Fund flows, both equity and debt, are very U.S. centric over the past two weeks.

00:35Really, those and some money into the diversified global equity funds. There's still some money

00:44coming in to dedicated China and India funds, but that's increasingly local. And in the case

00:51of India, we're seeing the redemptions from diversified global emerging markets funds

01:00begin to reach levels where their selling of Indian equity

01:05is getting close to cancelling out the inflows to the dedicated funds.

01:10Cameron, good morning from here. Where is it that you reckon that flows,

01:24not just over the last one month, because we know that the last 15 days, I think China dedicated

01:28funds also pulled off some money. Just trying to understand within that EM landscape, where is it

01:33that the market, which are the markets which are seeing the max outflows? And I know you don't

01:38get into a predictive mode per se because you speak about data, but I'm just trying to understand,

01:42what's your guess about what happens post the Fed cut?

01:47I think post the Fed cuts and people who have stayed out, as they often do during the summer,

01:55will come back and start taking a closer look. At the moment, the segment of the emerging markets

02:03universe that is struggling the most is Latin America, a fairly toxic combination for them,

02:16of doubts about Chinese growth, high US interest rates, unfortunate uptick in inflation,

02:25and pressure on the ESG theme, which certainly last year and in 2022 was actually pretty

02:34supportive of Latin America. Cameron, I know it's tough for you to call

02:40the outlook on fund flows, but before we go into debt as an asset class, I want to get an

02:47understanding from you whether you're seeing foreign money or just significant wealth flowing

02:52into gold. And what is that trend playing out like? Because gold is at record levels

02:57and it's had a very good run all through 2024. As you say, gold has been very popular, but

03:07people seeking exposure have not largely gone looking for that exposure in the fund universe.

03:14We have started to see an uptick in flows into gold funds over the past couple of months,

03:22and I've said this before, I've been somewhat surprised at how little gold funds have taken in

03:31given the uncertain balance between inflation and interest rates certainly over the past three years.

03:40Very lastly from me, would you be able to tell us how much flows are coming into debt and is

03:46Indian debt preferred over other debt offerings from other countries in the emerging market pack?

03:55So solid amounts are coming into debt funds, but again, it's very developed market-centric.

04:05US bond funds have been by far the most popular destination for fixed income investors this year.

04:13Emerging markets funds have generally struggled. That said, we are starting to see a modest pickup

04:22in flows to dedicated India bond funds and seeing India's weighting beginning to move up

04:32in the diversified funds, obviously a function of the recent inclusions on

04:43key indexes. Cameron, at the start of the month, or at least in the month of August,

04:55on the equity side, I just want to move the conversation back to equities before we wrap up.

04:59India and China were getting a pass and money was flowing into Japan. As you mentioned,

05:06not just on the debt side, on the equity side as well, on the EM side, I believe the India weightage

05:10is now the closest that it has been to China that it has ever been. So if the EM flows were

05:17to return with a bang post the rate cuts, could India, despite its valuations, see a larger flow

05:25from passive funds? I'm not asking you to predict what individual managers could do, but on the

05:29passive side, could the flows be larger? Obviously, if there's a broad re-rating

05:37of emerging markets, thanks to lower US interest rates, then India is going to benefit. Its

05:45average allocation among the gem funds we track is at a record high. So I think no doubt that

05:54would be very supportive of India. At the moment, I think a couple of issues are weighing on the

06:03dedicated side. Indian equities were very popular with Japanese investors before the events at the

06:11beginning of the month. And there's a certain amount of concern about whether winding up of

06:17carry trades will sweep Indian assets up. And there's also still a certain amount of

06:25uncertainty about what the new tax regime for investors will mean, including mutual fund

06:33investors. So I think the answer to your question is, if the brakes come off on diversified funds,

06:40it'll give you a nice bump. But the appetite for dedicated exposure, while it's still there,

06:49definitely seems to be at a lower ebb than it has been,

06:53certainly, in the first half of this year and all of last year.

06:59Thank you very much, Cameron. Great talking to you. We'll touch base again, hopefully,

07:02early next month to get some more perspective on where that flows are going or headed for.

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