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Chile AFPs dodge bullet, pull $1bn out of US before market drop

Chile AFPs dodge bullet, pull $1bn out of US before market drop

Talk about good timing. Chilean AFPs mitigated the impact of the US equity market slide that kicked off on February 2 by pulling close to $1.1 billion from the asset class in January.

After rallying last month, the S&P 500 fell almost 6% between February 2 and February 13 following a series of dips and ascents. Chilean pension funds dodged part of the drop by sticking to their strategy of pulling hundreds of millions from US equities every month since at least May 2017, according to reports by HMC Capital and its distribution head, Nicolás Fonseca.

‘The North American market has been oversold,’ Fonseca said. ‘[The AFPs] like emerging markets more and they’re continuing that trend.’

As of January 31, the AFPs still held on to $7.5 billion worth of US equities, so the real test of how much the market slide hit their portfolios will come at the end of February.

Last month, the AFPs also pulled $237.3 million from Japanese equities and $168 million from European stock funds, according to HMC’s January flows update. Previous reports by the firm show the AFPs had pumped a joint $5 billion into the two sectors in 2017.

‘Despite the net drop in their allocation to international equities, the AFPs’ portfolio in this asset class had a strong appreciation, due to the markets’ good performance, of about $4 billion - the highest figure we have since we’ve been making this report,’ Fonseca said.

Combined, the AFPs’ retreat from the US, Japan and Europe led international equities to register net outflows totalling $71.2 million, its first negative flows since December 2016, according to HMC data.

Equity sectors receiving positive flows in January include Asia with $952.7 million, Latin America with $473.6 million and global emerging markets with $130.2 million.

Although the AFPs withdrew a net $83 million from Brazil, the HMC report shows the remaining allocation of $2.9 billion contributed to performance in January, as it appreciated $414.9 million.

In the fixed income arena, the AFPs’ $1.1 billion net investment into the asset class made them net buyers in January. The pension funds continued favoring emerging market debt, like last year. Total net investment in the asset class last month came to $722.8 million, which brought the total allocation to $11.6 billion.

Favored funds

In January, the AFPs' top equity fund picks were the Aberdeen Latin American Equity with $383.7 million in net inflows, the Invesco Perpetual Asian with $235.1 million and the Veritas Asian with $138.1 million. 

For the debt, the pension funds invested a net $261.9 million in the GAM Local Emerging Bond fund, $201.3 million in the NN (L) Renta Emerging Markets Debt Hard Currency and $136.8 million in the AQR Style Premia High Yield Credit Ucits.

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