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Investors continue to creep back into equity funds and flock into bond funds, latest Morningstar European fund flow data reveals

Equity fund investors are edging back into the market, but the continuing stampede into bond funds dwarfed the second consecutive month of inflows into equity funds. Bond funds carried the day yet again, posting inflows of EUR 22.05 billion in October.

Key findings from Morningstar’s report on October asset flows include:

  • Risky bond funds were the most sought-after segment of fixed income last month, led by high-yield, corporate, and emerging-markets bond funds.
  • Virtually all of October’s top 10 asset-gatherers were bond-focused; PIMCO continues to be the main beneficiary of the bond boom among investors.
  • Allocation funds enjoyed steady inflows, bringing in EUR 2.76 billion. EUR cautious-allocation funds led inflows for all allocation fund categories, collecting new assets of EUR 1.21 billion in October, followed by EUR and GBP flexible-allocation funds.
  • The Morningstar emerging-markets allocation category saw modest inflows of EUR 86 million and remains the fastest-growing allocation category for the year to date, showing an organic growth rate of 68%.
  • Asset managers suffering heavy outflows include BNP Paribas, Santander, and Amundi.

Ali Masarwah from Morningstar’s European research team comments: “Investors’ motivation for the continuing craze for bond funds is open to interpretation. Superficially, European investors appear risk-happy and even indifferent toward tightening credit spreads, yet cautious when it comes to equities. Desperation, however, might also be an important driver. Institutional investors face the prospect of long-term liability gaps, which arguably cannot be bridged by low-yielding, safe government bonds. Meanwhile, investors are once again sticking to well-established names and large flagship funds offered by the likes of PIMCO and AllianceBernstein.”