Investors are Crowding into Bond Funds

European investors sent a staggering net €17 billion into bond funds in August  

Alanna Petroff 27 September, 2012 | 1:00PM

Investors continued to flee from equity funds in August, whilst sending staggering net inflows of €16.95 billion to bond funds, according to Morningstar’s latest European fund flow data. 

This same pattern emerged in the United States, where net inflows into fixed-income funds surpassed $30 billion in August.

Yield-hungry investors are continuing to pin their hopes on corporate bonds, especially high-yield and emerging-markets debt

“Yield-hungry investors are continuing to pin their hopes on corporate bonds, especially high-yield and emerging-markets debt," said Ali Masarwah from Morningstar’s European research team. "Conversely, safe-haven vehicles investing in USD, EUR, and GBP government bonds remained on European investors’ sell list in August."

In total, equity funds saw net outflows of €7.02 billion. Funds in Morningstar’s US Large-Cap Blend Equity category suffered the most, shedding net €810 million. However, a handful of equity categories saw inflows in August: the US Equity – Currency Hedged category saw the highest investor demand, posting net inflows of €324 million.

Additional Fund Flow Findings

Other key findings from Morningstar’s report on August asset flows include:

- The “Other Bond” category was the most popular Morningstar fund category across the board in August, attracting €1.88 billion. The category is filled with a mixed bunch of funds, comprising Italian target maturity funds, a few emerging-markets bond funds, and the widely popular AB American Income Portfolio. (This AB American fund is not available for sale to UK investors.)

- PIMCO topped the list of fund promoters by new inflows in August, collecting €3.1 billion (excluding money market funds). "In an uncertain market environment, investors stuck to the assurance offered by familiar names, with PIMCO topping the list of fund houses with the greatest inflows during the month,” said Masarwah. 

- Long-term funds took in nearly €11.72 billion in August, bringing their year-to-date total to €90 billion.

- Alternative funds gained momentum, with €713 million in net inflows.

- Allocation funds saw net inflows of €587 million; the EUR Cautious Allocation category topped the list, with net inflows of €356 million.

To learn about fund flow trends from July, read "Blockbuster Month for Bond Funds".

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

About Author Alanna Petroff

Alanna Petroff  is a financial journalist with Morningstar UK.