Chilean AFPs chased returns in Latin America, Europe, emerging markets and Asia in December, doubling the assets they allocated to those four regions combined during the calendar year.
The AFPs finished 2017 with USD 81.5 billion allocated to offshore mutual funds and ETFs, up from USD 57.7 billion in 2016 – an increase of almost USD 24 billion. The December haul for cross-border products was USD 776 million.
Asia equity funds and ETFs, which rose 42.8% on average in 2017, were the top draw for Chilean AFPs last year. The category accounted for USD 20.5 billion in AUM at the end of December, for a 25.2% market share. At the end of 2016, Asia equity represented USD 10.9 billion and 18.8% of AFP investments.
The second-biggest attraction of 2017 was Europe equity. Europe equity took USD 13.2 billion from Chilean AFPs in 2017, for a 16.2% share versus USD 6.3 billion and 10.9% in 2016.
Emerging-market-bond products came in third place, with USD 10.8 billion AUM and a 13.3% market share. The category represented USD 6.2 billion under management in 2016 for a 10.8% market share.
The AFPs nearly quadrupled their exposure to Latin American equities in 2017, with positions totaling USD 6.2 billion into the region’s equities versus USD 1.6 billion the prior year. Latin America equity rose to a 7.6% market share from 2.8% at end-2016.
North America equity held on to the number four spot for allocations, even though the AFPs reduced their exposure to the category by USD 3.4 billion. The category represented 10% of the AFPs’ cross-border allocation last year versus 20.1% in 2016.
North America equity funds gained a respectable 19.3% in 2017 even as investors fretted that valuations were overstretched. The December approval of Donald J. Trump’s tax overhaul has fueled further advances in key stock indexes this year.
The International Monetary Fund predicts 2018 world economic growth of 3.7% as economies in Asia and continental Europe pick up the slack for the US, which is seen expanding at less than 3%.
“People’s general view is that the US market has passed its mark, and valuations are not necessarily crazy, but they’re certainly high,” said Richard Garland, managing director at Investec Asset Management. “As long as the earnings come through you can justify them. But in terms of where the next leg of the bull market comes from, the view seems to be it’s really outside the US.”
Latin America, Europe look good
With this “risk-on” mentality in full swing, Latin America equity was the category with the biggest inflows from AFPs in December. The AFPs moved USD 577 million into Latin America equity last month, actually a cooling off from the USD 968 million allocated in November.
Aberdeen Latin America Equity-I2 led inflows among Latin America equity funds in December, taking in USD 323 million for a total of USD 1.8 billion in AUM under management. The fund returned 3% for the month and 29.7% for the year.
Three-month inflows for Latin America equity through December totaled USD 2.1 billion.
The average Latin America equity fund gained 5.5% in December and 32.1% in the year. The top-grossing Latin America equity fund last year was iShares MSCI Brazil Capped, which held USD 2.6 billion and yielded 21.9%.
Elsewhere, European equity attracted USD 379 million in December, a slowdown versus USD 689 million in November.
Barclays raised its 2018 growth projection for Europe to 2.5% from 2.2%, noting in a January 12 research report that this year should mark Europe’s best economic performance since 2007. Domestic demand and strong global trade are seen benefiting the region.
Fourteen European equity funds had inflows while eight had outflows in December. The category gained 0.7% in December and 30.5% in the year.
The biggest inflows, USD 140 million, went to F&C European Growth & Income – 3, a fund that returned 34.8% in the year. For the year, DB Deutschland – IC attracted the most savings in the European equity category, USD 2.7 billion; the fund gained 36.5% in 2017.
Emerging-market bonds entice
Emerging market bond funds and ETFs continued to lure savings despite a significant embrace of equities in December. The bond funds attracted USD 328 million last month.
NN IP Emerging Markets Debt (Hard Currency) – I Acc USD led inflows for the category in December, taking in USD 113 million, while GAM Local Emerging Bond – C USD had the most AUM at year end, USD 2.4 billion.
Asia still king
The AFPs moved USD 235 million into Asia equity in December, bringing three-month inflows to USD 2 billion. Twenty-three funds in the category saw inflows while 29 had outflows.
The top fund for inflows was Invesco Perpetual Asian – Acc, which received USD 183 million in December. The fund gained 3.5% in December and 48.2% in the year.
For the year, the top-grossing fund in the category was Schroder Asian Opportunity – C Acc, taking in USD 2.9 billion. That fund returned 52% over the 12-month period.
This year, the MSCI Asia ex-Japan kicked off its best start since 2006, as a China rally led the index to a 4.1% gain in the first two weeks of January. “With such a strong start, the key question for investors is what do valuations looks like now,” Credit Suisse said in a January 11 note.
Notably, Japan, which was among the four worst equity performers of 2017, has been among the top performers in early 2018.
Chilean AFPs pulled USD 63 million from Japan equity funds in December, bringing their three-month withdrawals to USD 204 million. The AFPs ended 2017 with USD 7.8 billion in Japan equity, up from USD 5.9 billion in 2016, but the region’s market share slid to 9.6% from 10.2%.
Japan equity is now in Credit Suisse’s “Cheapest 4 club.”
The AFPs favored JP Morgan Japan Equity – I Acc last year, allotting USD 1.8 billion to a fund that returned 36.9%.
iShares finish first
iShares finished 2017 as the clear market leader for AUM from Chilean AFPs, with USD 8.3 billion.
GAM held on to second place with USD 5.8 billion under management.
Investec displaced Schroders for third place in December, with USD 4.9 billion.