Allocator hunger for bond funds triples in year to June

Bond funds are continuing to enjoy inflows, while equity funds have suffered once again, according to Lipper’s report on European fund flow trends for June.

Bond funds saw €14.2bn additional business in June. Total flows into them so far this year amount to €88.4bn, nearly three times the €31.2bn achieved over the same period last year.

The most popular sectors in June were bonds in global currencies, US dollar-denominated bonds and emerging market debt, which saw inflows of €2.9bn, €2.2bn and €1.9bn respectively. A further €530m flowed into emerging market local currency funds.

Emerging market debt funds have been the winners of inflows in the first half of the year, with a total of €12bn in new money, and another €4.1bn going into local currency funds.

The popularity of the asset class largely explains the success of fund managers enjoying the greatest inflows so far this year: fixed income specialists PIMCO with €12.8bn, followed by AXA with €8.9bn and M&G with €6.6bn.

The continued confidence in bonds is partly surprising, however, when one looks for example at yields on German 10-year government bonds – traditionally a ‘safe haven’ investment option – but currently at a paltry 1.43%.

Many European money market managers regard the yields on core European paper as so negligible that they are refusing to put fresh money into these debt markets.

At the same time European shares (MSCI Europe index) are up 7.39%.

But at the same time equities funds continue to lose money, reporting three successive months of outflows. European equity fund assets are down €15bn year to date.

Despite inflows of €5.3bn in June, long-term European funds have only managed to scrape €73.4bn since the start of the year, compared to €96.5bn last year to the end of June.

Funds focused on local markets in Europe have been the losers, particularly in those markets heavily affected by the debt crisis. Global funds have fared comparatively better.

Funds to have lost business to June include French (redemptions of €11bn), Italian (-€5.1bn), Spanish (-€3.5bn) and German (-€720m), while global currencies, corporate bonds and high yield funds have seen inflows of €2.9bn, €1.4bn and €1.4bn respectively.

A similar preference towards global funds is evident in equities.

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