Global Equity Funds Draw Big Inflows Overlooking Tariff Concerns

In the face of escalating tariff concerns, global equity funds have witnessed a surge in inflows, driven by expectations of rate cuts and their potential impact on corporate earnings and economic growth. Despite the uncertainty surrounding trade policies, investors have been pouring money into these funds, attracted by the prospect of higher returns and the potential for a more favorable economic environment.

According to data from LSEG Lipper, global equity funds saw a net inflow of $28.3 billion in the week ending February 26, 2025, the highest amount since December 25, 2024. This influx of capital comes as investors anticipate rate cuts by central banks, which could boost corporate earnings and fuel economic growth. U.S. equity funds, in particular, have been popular among investors, with a net inflow of $19.71 billion in the same week, the largest weekly inflow in nine weeks.

The financial sector has been a significant beneficiary of these inflows, with investors acquiring funds worth $4.68 billion in the week ending November 13, 2024. This is the highest amount in at least a decade. The expectation of rate cuts and their potential impact on financial institutions' earnings has likely contributed to this trend. Additionally, European and Asian funds have also witnessed significant inflows, with net inflows of $4.33 billion and $3.25 billion, respectively, in the week ending February 26, 2025.

Investors' optimism about the potential impact of rate cuts on earnings and growth has been a significant factor in global equity funds' inflows. The MSCI World index scaled record highs for three consecutive days following Trump's victory in the 2024 U.S. presidential election, driven by investor optimism about his policies. This suggests that investors' expectations of rate cuts and their potential impact on earnings and growth have been a significant factor in global equity funds' inflows.



However, investors should not overlook the potential risks associated with tariff policies. While the impact of tariffs on specific industries and companies may vary, the broader implications could be larger than the direct effect. Prolonged tariffs and retaliatory actions by other countries could hurt growth and add to inflation, leaving central banks with limited flexibility in their policy rate decisions. In markets, U.S. equities could come under pressure in the next few months as investors seek additional compensation for these risks.

To mitigate these risks, investors can consider several strategies. First, they can increase diversification by leaning on high-quality short-term bonds, higher-yielding "plus" sector bonds, and alternatives to manage risk. Second, equity investors can target tech firms with a larger domestic footprint to better position their portfolios against geopolitical headwinds. Third, investors can add gold into their portfolios to hedge against higher prices and geopolitical volatility. Finally, investors should remain nimble and consider hedges to manage volatility and insulate their portfolios from changes in tariff policy and subsequent headline volatility.



In conclusion, global equity funds have drawn big inflows, driven by expectations of rate cuts and their potential impact on corporate earnings and economic growth. While investors should remain cautious about the risks associated with tariff policies, they can employ various strategies to mitigate these risks and maintain a balanced portfolio in an uncertain market environment. By staying informed and adaptable, investors can navigate the complexities of the global economy and capitalize on opportunities as they arise.