Chilean pension funds have pulled a net $2.2 billion from passive funds so far this year as they’ve retreated from US equities, an investment the AFPs tend to manage through ETFs.
In August alone, Chile's six pension funds removed a net $841.6 million from passives, according to a report by Chilean asset manager and distributor HMC Capital based on data from the local pension regulator.
The exodus from vehicles such as ETFs started in April, said HMC’s distribution co-head, Nicolás Fonseca. In parallel, the AFPs have pulled a net $2.9 billion from US equities so far this year due to the Federal Reserve’s rate hikes and to high valuations, according to the report and to comments by Fonseca.
‘Given that the AFPs prefer to invest in active funds in markets excluding the US, the only possibility I see for indexed passive managers to recover is that interest for the North American market comes back,’ Fonseca said.
Other passive vehicles have recorded inflows, such as the net $442.7 million that has entered the iShares MSCI Brazil Capped ETF. However, the allocation to Brazil hasn't helped passive managers because they haven’t compensated the US sell-off, Fonseca said.
Asian equities, the AFPs’ largest allocation in their $69.7 billion international portfolios, recorded net flows of $617 million in August for a net total of almost $2 billion year to date. European stock funds, which rank second in the pension funds’ international portfolios, gathered a net $460 million last month and $2.7 billion since January.
‘[It caught my attention] that interest for Europe remains alive and strong, even though that market has been basically flat the past four months and that, in addition, the euro has strengthened a lot,’ Fonseca said.
Since the beginning of May, the MSCI Europe UCITS ETF has dropped 0.5% and in September, the euro rose to its highest since March 2015.
On the fixed income side, emerging market local currency bonds had net inflows of $202.7 million in August and more than $1 billion year to date. Fonseca said he’s seen more appetite for that asset class in the past few months as the dollar has weakened and as the AFPs, which as of August ran $195 billion in assets, continue to look for yield.
In August, the three equity mutual funds with the most inflows were the Investec Asian Equity with a net $166.3 million, the GLG Continental Europe with $160.6 million and the Eastspring Japan Dynamic fund with $145.7 million.
For fixed income, the GAM Local Emerging Bond fund came in first with a net $110.2 million, the Deutsche Invest I ‐ Emerging Markets Corporates second with $93.6 million and the Pimco Income third with $68 million.
Schroders, GAM and Investec ranked as the top three managers by assets with a collective $11 billion.