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FUND FLOWS: Inflows Continue For Fixed Income Funds

Money to fixed income has been overshadowed by equities, but inflows are better than outflows.

Underperformance relative to equities remains no obstacle for EPFR Global-tracked Bond Funds, which posted inflows for the 11th straight week and 21st time in the 22 weeks year-to-date during the seven days ending May 31. Once again Asia-Pacific Bond Funds were the only major group by geography to post outflows while Global, U.S., Emerging Markets and Europe Bond Funds saw their current inflow streaks extended.

Expectations of another increase in U.S. interest rates later this month had a limited impact on flow patterns, with the modest flows into Bank Loan Funds and the fact Mortgage Backed, Emerging Markets and High Yield Bond Funds posted solid inflows suggesting the anticipated hike is already largely priced in. Municipal Bond Funds did record outflows, but this fund group faces additional headwinds from Puerto Rico’s de facto bankruptcy, and the lack of clarity on the new administrations tax reform and infrastructure spending proposals.

Europe Bond Funds have now recorded inflows for five straight weeks, the longest such run since the second quarter of 2016, with retail commitments the second biggest year-to-date. The appeal of this asset class is broadening, with Japan-domiciled Europe Bond Funds recording inflows for only the second time since the beginning of last year.

The latest allocations data shows managers of diversified Europe Bond Funds rotating exposure from Germany and the Netherlands to France, the U.K. and Italy. The latter shift runs counter to investor sentiment: Italy Bond Funds have experienced net redemptions 20 of the 22 weeks year-to-date.

Flows into Emerging Markets Bond Funds favored funds with hard currency mandates by a more that 2-to-1 margin and went predominately to funds with broad, diversified mandates. Emerging Market Corporate Bond Funds took in fresh money for the ninth consecutive week. Funds with Emerging Asian mandates absorbed over half of the headline number.

Among the U.S. Bond Fund sub-groups, Intermediate Term Blend Funds posted the biggest inflows in cash terms and Intermediate Term Government Bond Funds in flows as a % of AUM terms.

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