FIIs buying big in equity funds

Fed up with sluggish returns in home markets, US mutual funds investors are upping their stakes in emerging market equities that have shown strong growth trends.

According to information sourced from AMG Data Services, the cumulative net flows into emerging market equity funds for January-February 2006 stood at $8.3 billion, a four-fold rise in collection compared with that of the same period a year ago.

Asia Pacific ex-Japan Equity Fund collected $2.3 billion against $463 million during the same period last year.

"It is because of the new collection in US mutual funds that foreign investors are buying big time in Indian stock markets," Sandip Sabharwal, chief investment officer (equities), Lotus India AMC, said.

Promoted jointly by Temasek and Rana Talwar-owned Sabre Capital, Lotus is the latest entrant to the mutual fund industry. So far this fiscal, foreign institutional investors (FIIs) have poured in $2.7 billion.

Emerging market funds have been the fastest growing category this year. In calendar year 2005, these funds gathered $15.9 billion compared with $5.8 billion the year before (2004).

"Emerging market funds have been raking in a lot of money as these markets continue to beat the developed market, especially that of the US," said the head of sales of a foreign brokerage house.

This year till date, the MSCI world index has given 4.8 per cent return, while the MSCI emerging market index has appreciated 12.08 per cent. The MSCI BRIC (Brazil, Russia, India, China) index has gained 22.8 per cent.

In the first couple of months of 2006, US-based global equity funds collected $1.9 billion, down from $2.7 billion the year before.

For the whole of calendar year 2005, global equity funds raked in $7.2 billion. Japanese equity funds saw cumulative net flows at $660 million compared with $233 million last year.