EPFR Global-tracked bond funds set their second consecutive weekly inflow record in early May, outgaining equity funds for the third straight week despite the strong rally underway in many major equity markets.
The week ending May 8 also saw money market funds snap an outflow streak stretching back to late February.
Overall flows into bond funds totalled USD13.07bn while equity funds, helped by the first retail commitments in three weeks, absorbed a net USD10.49bn and money market funds took in USD21.67bn, their biggest inflow since early January.
Funds dedicated to the US accounted for over 50 per cent of the flows into all bond funds and over 70 per cent of the flows into equity funds.
On the fixed income side, fund groups associated with higher risks and rewards continued to fare well, with high yield, Europe, emerging markets local currency, floating rate and total return bond funds all taking in over USD1bn during the week.
Equity investors showed a preference for diversified exposure, although Japan and Germany equity funds both posted solid inflows, and were less defensive in their sector allocations. But they remained leery of taking on exposure to Europe and the major emerging markets.
Among emerging markets equity fund groups those focused on smaller markets are faring better. In flows as a percentage of asset terms the top 10 YTD leaders among EM country fund groups include Bangladesh, Pakistan, Colombia, Philippines, Argentina and Vietnam equity funds while net dollar flows into frontier markets funds recently moved over the USD1.8bn mark. Dedicated BRIC equity funds, meanwhile, have now posted outflows for 26 consecutive weeks.
EPFR Global-tracked Japan equity funds enjoyed another solid week as the benchmark Nikkei index hit levels last seen five years ago, the yen crossed the symbolic 100 mark per dollar and export bellwether Toyota forecast strong profit growth this year. But inflows slipped for the third week in a row after peaking at over USD3bn the third week of April.
Healthcare/biotechnology sector funds posted their biggest outflow since 4Q11 during the first week of May as flows into EPFR Global-tracked sector funds suggested that defensive bias which investors have shown so far this year may be fading. Consumer goods and utilities sector funds also experienced net redemptions while energy, financial and technology sector funds enjoyed solid inflows. Energy sector funds had their best week since the beginning of the year with ETFs and master limited partnership funds accounting for the bulk of the inflows.
Two of last year’s favourites fixed income fund groups, mortgaged backed and municipal bond funds, remain among this year’s laggards with the latter hobbled by some high profile municipal bankruptcy cases and proposals at the federal level to limit the tax benefits of holding municipal debt. Also out in the cold at present are inflation protection bond funds, which have posted outflows five of the past six weeks as the US inflation rate slipped below the Federal Reserve’s target rate and the Eurozone rate dropped a three year low.