Flows into ETFs and diversified funds in emerging markets have held up: EPFR Global

Flows into exchange-traded funds (ETFs) and diversified funds have held up in emerging markets, with India's allocation seeing the sharpest growth in the past 14 months, according to financial intelligence provider EPFR Global. This, at a time when aggressive hikes in the interest rates are making the US a more attractive investment destination.

"There is a traditional narrative that when the going gets rough, investors want to have an active manager at the helm... We sort of steered passively into real trouble. But even with the market disruption, we are still seeing something of a rotation away from active to passive," Cameron Brandt, Director of Research at EPFR Global, told CNBC-TV18 referring to two main styles of investment: active and passive.

Active investing involves rapid trading of securities and monitoring them closely to maximise profits, in contrast to passive investing, which focuses on long-term wealth creation through indices — thus ensuring lower risk.

The dividend equity funds are seeing strong weekly inflows, he said.

The Fed is widely expected to announce an aggressive increase in its key lending rate later in the day. It has the herculean task of taming a sticky 40-year high US inflation without damaging the pace of growth two years into the pandemic.

Brandt believes a 75-bps hike in the rate is quite likely by the US central bank. "The real driver of sentiment is the perception on interest rates and where they are headed," he said.

The official US inflation reading for June 2022 will be released on July 13.

However, in his view, as soon as the Fed gets inflation under control, it is going to shift its focus on "implicit parts of its mandate as evolved over the past decade", such as a stable stock market and a low unemployment rate.

One can expect a slowdown in growth in the second half of 2022, he warns.