Bringing you live news and features since 2013
Bringing you news, views and analysis since 2013

10657

Gold and high yield bond funds shine as wait for QE3 green light continues

RELATED TOPICS​

The week ending 22 August saw EPFR Global-tracked Europe equity funds attract retail inflows for only the second time since mid-2Q11, while retail commitments to gold and precious metals funds boosted inflows to a 29 week high.



The search for yield remained a key driver for both retail and institutional investors going into the final week of August. High yield bond funds attracted another USD1.8bn of inflows, municipal and mortgage backed bond funds extended their current inflow streaks to 51 and 75 straight weeks respectively.

Year-to-date flows into dividend equity funds hit USD29.6bn after taking in an additional USD380m of net inflows, while alternative funds, which include a wide range of strategies from volatility funds to long/short and currency funds, attracted their biggest weekly inflow in over two years.

Overall, net flows into all EPFR Global-tracked bond funds totalled USD4.9bn – of which 61 per cent flowed into US bond funds – while USD847m was pulled from equity funds. There was a third consecutive week of inflows for money market funds ahead of the SEC’s decision not to vote on tougher regulations aimed at cutting the risk of future bailouts.

Investors committed money to EPFR Global-tracked emerging market equity funds for the fourth straight week as hopes of additional monetary stimulus in the US and Europe trumped fears about slowing growth in China and another recession in Europe. The diversified global emerging market equity funds were again the preferred vehicle, accounting for over 85 per cent of all new commitments, while Asia ex-Japan and EMEA equity funds posted modest outflows and Latin America equity funds took in a net USD53m.

With China’s economy producing more mixed data, Korea remains the market of choice for investors looking for country specific exposure in emerging Asia. Over the past four weeks China equity funds have attracted a net USD138m while Korea equity funds have taken in USD477m. Meanwhile, the strong interest in smaller regional markets evident earlier this year continues to fade. Thailand equity funds have posted outflows 12 of the past 15 weeks, Philippines equity funds 10 of 15 and Vietnam equity funds, which started the year with a 20 week inflow streak, have suffered outflows in 12 of the past 15 weeks.

EMEA equity funds continue to struggle with well-established headwinds ranging from the Eurozone debt crisis to political unrest throughout Africa and the Middle East. YTD outflows are, however, a little over half of the USD2bn that had been pulled out during the comparable period last year.

Redemptions from Latin America equity funds YTD are running at well under half the pace seen during the first nine months of 2011. But investor appetite remains subdued, in part because of doubts about Brazil’s economy and the policy mix of tax cuts, interest rate reductions, infrastructure spending and capital controls being deployed to bolster domestic consumption and export competitiveness in the face of weaker Chinese and European demand.

The third week of August saw a rare appearance by retail investors, who steered fresh money into Europe equity funds for only the second time since mid-May, 2011, and committed the most money to Japan equity funds since early March as global equity markets continued their recent run-up. Many of those markets stumbled as the week progressed and questions about the scope and timing of fresh easing measures resurfaced.

The retail money helped Europe equity funds snap a seven week outflow streak, with flows into diversified regional funds more than offsetting redemptions from most dedicated country fund groups. Europe regional equity funds have now posted inflows for three straight weeks, their longest inflow streak since early 1Q12, while both France and Germany equity funds recorded their fifth consecutive weekly outflows. Year to date, France equity funds have seen the biggest outflows in both dollar and percentage terms among the fund groups dedicated to the largest European economies.

In the case of Japan equity funds, the arrival of retail money was a signal for institutional investors to pull back. Total outflows were the largest in over a year as institutional investors digested Japan’s unexpectedly large trade deficit in July, declining confidence in the manufacturing sector and the government’s assertions that the end is in sight for deflation.

Retail investors did decline the opportunity to chase the bounce in US equity indexes, pulling money out of US equity funds for the sixth week in a row with actively managed funds bearing the brunt of the redemptions.

For the third week running the two major diversified developed markets fund groups took different tacks. Global equity funds posted their biggest outflow since early July, snapping a three week inflow streak, while flows into Pacific equity funds hit a five week high.

Flows into EPFR Global-tracked sector fund groups during the third week of August reflected investor’s faith in – and in some cases concerns about – the willingness of central banks to implement new easing measures. Fund groups associated with growth took in fresh money while those with more defensive reputations did not. Investors committed between USD23m and USD1.5bn to commodities, energy, financial, real estate and technology sector funds and redeemed between USD1m and USD283m from utilities, infrastructure, consumer goods, industrials, healthcare/biotechnology and telecoms sector funds.

The flows into commodities sector funds were nearly all attributable to funds specialising in gold and precious metals as investors braced for further pressure on the value of fiat currencies from quantitative easing measures. Technology and financial sector funds, meanwhile, extended their longest inflow streaks since 1Q12 and 4Q11 respectively.

Redemptions from healthcare/biotechnology sector funds hit a 24 week high as the US presidential election campaign highlighted question marks hanging over the funding of public healthcare programmes. Investors have been pulling money from funds focused on both conventional healthcare and biotechnology.

There was little change to the "yield first" pattern that flows into EPFR Global-tracked bond funds have displayed for much of the year. High yield bond funds took in fresh money for the 11th straight week as YTD inflows pushed over the USD52bn mark, municipal bond funds saw their inflow streak move one week shy of a year and emerging market bond funds took in another USD426m.

With yields on US government debt falling again, fund groups specialising in that asset class saw investors leave in search of more rewarding options. Flows into US high yield bond funds accounted for over a third of the flows into all US bond funds and US mortgage backed bond funds posted inflows for the 75th straight week.

Europe bond funds were the only major fixed income fund group to post outflows as investors waited for details of the latest European Central Bank proposals to stabilise Eurozone sovereign debt markets. Those details, some investors now fear, could take months to emerge.

Flows into emerging market bond funds swung back in favour of funds with hard currency mandates. Emerging Asia remains the preferred choice for investors looking for regional exposure. Overall flows were under half the YTD weekly average of USD992m.

"Outflows were recorded from all durations of government bond funds, long, intermediate and short term, during the week," says Cameron Brandt, EPFR Global’s research director. "This may be a response, and a contributor, to the recent increase in US Treasury yields."

Latest News

Iress has announced that it has extended its partnership with Dow Jones Newswires to give..
The Financial Conduct Authority (FCA) writes that in new rules, it has set out a..
GAM has announced it has reached a definitive agreement to transfer its Management Company activities..

Related Articles

infrastructure headline
The new Labour government has launched a GBP7.3 billion National Wealth Fund which will target private capital to support the UK’s growth ambitions...
The new Labour government has launched a GBP7.3 billion National Wealth Fund which will target private capital to support the..
Tom McPhail, lang cat
Today’s news of a landslide victory from the UK’s Labour party, finds that the markets had mostly factored in a widely predicted Labour win...
Today’s news of a landslide victory from the UK’s Labour party, finds that the markets had mostly factored in a..
Pensions might not feature at the top of the political parties’ manifesto promises this election, but their role in driving the UK’s growth ambitions is increasingly on investors’ agendas...
Pensions might not feature at the top of the political parties’ manifesto promises this election, but their role in driving..
Duncan Higgs, Bfinance
Bfinance has released its latest report, "Investment Management Fees: Fairness Revisited," with a comprehensive analysis of current trends and challenges in investment management fees and costs across various asset classes...
Bfinance has released its latest report, "Investment Management Fees: Fairness Revisited," with a comprehensive analysis of current trends and challenges..
Subscribe to the Institutional Asset Manager newsletter

Subscribe for access to our weekly newsletter, newsletter archive, updates on the site and exclusive email content.

Marketing by