Capitulation trade pulls cash out of funds-EPFR

By Daniel Bases

NEW YORK, Oct 10 (Reuters) - Mutual fund tracker EPFR Global reported on Friday that nearly all of the 24 major equity, fixed income and sector fund groups it tracks suffered their worst weekly performance ever.

EPFR, which began tracking fund flows on a weekly basis in 2001, said all but three fund groups -- global bond funds, U.S. municipal bond funds and U.S. bond funds -- had their worst week on record.

Latin American equity funds lost over 32 percent in value in the week ended Oct. 8. The group had $428 million in net outflows of cash, bringing the total year-to-date redemptions to $4.6 billion.

The value of Brazil funds, on average, fell 33.68 percent

Money market mutual funds took in a net $27 billion in fresh cash on the safe-haven bid, the only bond fund group to take in cash. For the year a net $164 billion has flowed into the group.

The only other fund group to take in cash for the week were real estate funds, which was ironic given that real estate was the source of the cascading losses in global financial markets. For the week, the fund group took in a paltry $43 million.

"Besides October 1987, and September 11, this ranks right up there in terms of fear in the market. A lot of people are worried, and I think there is going to be further selling," Ian Wilson, managing director of fund data at EPFR, told Reuters.

"We are probably not going to see things stabilize until after the U.S. election because of the uncertainty it holds," he added.

U.S. equity funds had net outflows of $3.11 billion in the latest week. The value of U.S. equity fund portfolios are down 33.4 percent for the year, with roughly half -- 15.4 percent -- of the decline coming in the latest week.

Long-only dedicated emerging market equity funds had net redemptions of $2.3 billion, while the value of the portfolios fell 20.22 percent in the latest week. For the year, this group is down nearly 49 percent while net redemptions total more than $35 billion.

Emerging market bond funds suffered their biggest weekly outflow of cash, losing $1.87 billion to redemptions.

"Emerging market bond funds dropped $4.1 billion in underlying asset value, on both a nominal basis and as a percentage of assets under management. That comes on top of the biggest weekly outflow ever seen," said David Spegel, global head of emerging markets strategy at ING in New York.

"The U.S., Europe, the rest of the world is down, why should emerging market valuations remain high? It is all relative value. Now we see the decoupling theory was truly trash," Spegel added.

International funds had net outflows of $5.2 billion, with the portfolio value falling 14 percent.

Japan funds had net redemptions of $265 million. However, the portfolio value dropped 15.73 percent in the latest week.