Fund investors globally have tilted to the bond market over the last month, figures from the Institute of International Finance (IIF) show.
According to the IIF, a global financial services industry body boasting 500 members across 70 jurisdictions, fixed income products accounted for about US$37 billion of the US$60 billion-odd worldwide flows into managed funds and exchange-traded funds (ETFs) since mid-July.
As bond fund flows were up about US$10 billion over the month, however, global equity products attracted $25 billion, a slump of 25 per cent compared to the previous four-week period.
“Both US and European bonds saw inflows, highlighting the more dovish recent turn to central bank comments and concerns about low inflation,” the IIF Portfolio Allocation Trends report says. “However, a more cautious tone has been evident: investment grade bonds have seen inflows of nearly 2% of AUM [assets under management], while high-yield bond funds have seen net outflows.”
Nonetheless, all mature markets, excluding the US, saw net positive flows to equity funds during the month.
“In contrast, US equity funds have seen redemptions of USD6 billion since mid-July,” the IIF data shows. “Amid growing concern about prospects for US tax and trade policy, outflows have accelerated of late.”
Emerging markets (EM) funds, meanwhile, appear to have weathered the slight turbulence over the month with net flows of US$14 billion – tipped slightly in favour of equities (about US$7.5 billion of the total).
“However, mid-August has seen the first weekly outflows since January,” the IIF says. While the outflows were largely equity-driven, a more cautious tone can also be seen in the more neutral stance of EM bond investors.
“Our EM risk appetite metric suggests that investors continue to take on credit risk in search for yield, but have turned slightly negative on EM currency risk despite recent USD weakness.”
Institutional investors represent almost 60 per cent of all EM bond fund flows since mid-July, the IIF says, with ETFs filling most of remainder.
“However, for equities, ETFs have accounted for the majority of the demand—flows to EM equity ETFs were some USD4.7 billion (over 6o% of the total),” the IIF report says.
Since hitting a low of about 11 per cent of global fund portfolio allocations in 2016, EM asset exposure has trended up to almost 13 per cent at the latest count. Conversely, the mature market exposure fell by two per cent to finish the period at 87 per cent.
EM fund allocations reached a 10-year high of almost 19 per cent (versus 81 per cent in mature markets) in 2011, the IIF research shows.
IIF members include commercial and investment banks, asset managers, insurance companies, sovereign wealth funds, hedge funds, central banks and development banks. The global fund industry body is headed by CEO, Timothy Adams, along with executive managing director, Hung Tran.