Chilean pension funds have increased their allocation to Asian equities by a net $1.4 billion so far this year, solidifying that asset class as their top bet in their international portfolios.
In July alone, Chile’s six AFPs pumped a net $569 million into the asset class, 73% of their total new investment in international equities, according to a report by Chilean distributor and asset manager HMC Capital.
Asia’s allure lies in its returns, which in June came in at about 5%, said HMC’s co-head of distribution Nicolás Fonseca.
‘In general, emerging markets have done really well this year and I think the AFPs are confident that this will continue for the rest of the year,’ Fonseca said.
Europe ranked as the AFPs second largest bet in July with $519.3 million in net flows, slightly less than the $777.5 million invested in June. Europe remains the asset class with the most inflows this year with a net windfall of about $2.3 billion.
In July, the AFPs invested a net $398.6 million in Latin America while pulling $91.6 million from Brazil, a continuation of their June move of investing in the region while retreating from its largest economy.
‘The Brazil ETF rose 11% in July, basically the same as Bovespa has returned during all of 2017 - so it’s not surprising that there’s some profit taking,’ Fonseca said.
Chile’s AFPs have pulled a net $2.1 billion from US equities since January, with a $500 million retreat in July alone.
Even some US fixed income funds have experienced outflows. As a whole, the AFPs bond investments have increased a net $1.3 billion this year, but their allocation to US high yield debt has dipped a net $271.8 million.
This year’s capital flight is due to the country’s tightening monetary policy and its high valuations compared to other markets, Fonseca said.
In July, the most popular equity funds were the Investec Latin American Smaller Companies Fund with $195.0 million in net inflows, the Aberdeen Latin American Equity Fund with $193.9 million and the Schroder ISF Asian Opportunities A Acc with $151.6 million.
On the fixed income side, the Julius Baer Local Emerging Bond ranked first with $147.8 million in inflows, the Deutsche Invest Emerging Market Corporates second with $138.7 million and the third with $70.5 million.