India funds top draw among emerging market funds

India-dedicated funds have been top draw among Asian emerging market funds in 2005. According to Massachusetts-based Emerging Portfolio Fund Research (EPFR), India-dedicated equity funds attracted $2.5 billion inflows which are more than a third of the net inflows into Asian ex-Japan funds during the calendar year till mid-December.

A year-end report released by the firm on fund flows into various emerging market funds said, "Investors had an insatiable appetite for India equity funds." EPFR collects fund flows and allocations data directly from 10,000 funds globally with $5 trillion in total assets.

According to EPFR, 2005 was a record-setting year for investor contributions to emerging market equity and bond funds and global bond funds. The firm estimates the year to end with net flows of over $60 billion into global, international and emerging markets equity funds, making it the second best year for flows into such funds since 1995.

Last year these funds received $75.3 billion from global investors. However, 2005 was the worst year of flows in this decade for US and Europe equity funds.

Flows in 2005 were the strongest on record for the dedicated emerging market equity Funds. These funds, with about $250 billion in total net assets, had absorbed $16.1 billion of net inflows year to date to mid-December.

Flows in 2005 were roughly five times the strength of flows in 2004 and exceeded the previous record setting year, 2003, in which $14.4 billion flowed into these funds from global investors.

This year investors have sought greater concentration in their exposure to emerging markets, showering regional and country funds with capital while limiting their contributions to funds offering broader allocation in the asset class, EPFR said.

The weak link among EM equity funds were the geographically diversified GEM equity funds, which recorded inflows of just $1.9 billion though this was still better than last year's $2.3 billion of net outflows.

Besides, BRIC equity funds finished the year on a roll. These funds which invest in Brazil, Russia, India and China pulled in net inflows of $927 million since October when the firm started tracking the new category. Currently, this category boasts of total assets of $4billion.

"With the MSCI EMF index set to outperform the World index for the fifth straight year and since economic fundamentals are still solid and emerging markets are still trading at a sizable discount to developed markets we are expecting fund flows into emerging market funds to continue to be strong in the first part of 2006," says Brad Durham, an MD of EPFR.

During the year, Japan equity funds with $75 billion in total assets have taken in $8.7 billion of net inflows, adding nearly 20 per cent to their net assets this year. US equity funds also posted net outflows in 2005.

These funds, with $2.3 trillion in total assets, suffered outflows of about $14.7 billion this year compared to $20.5 billion inflows in 2004. Europe equity funds also suffered huge outflows in 2005 amounting to $19 billion, reducing net assets by about 14 per cent during the year.