Fixed Income Suffers as Investors Brace for Rising Rates, Morningstar’s Latest Fund Flows Data Reveals

1 October 2013

Morningstar’s latest fund flows data indicates that fixed income suffered in August as investors brace for rising rates. As the U.S. Federal Reserve laid out a timetable for the tapering of bond buying, commonly known as QE3, investors embarked on a selling spree, redeeming long-term funds on a substantial scale. According to Morningstar data, long-term European funds posted net redemptions of EUR 2.1 billion in August. Bond funds suffered the most, with investors withdrawing EUR 7.9 billion; outflows from equity funds totalled some EUR 683 million.

Further findings from Morningstar’s latest fund flows report include:

  • Six of the 10 Morningstar long-term fund categories hit hardest by redemptions in August were global or Asian emerging-markets categories.
  • Funds offering European and eurozone large-cap equities gained traction: Europe large-cap blend equity enjoyed the highest inflows of any Morningstar category in August, collecting EUR 1.6 billion.
  • PIMCO Total Return Bond Fund saw outflows of EUR 1.1 billion. Year to date, the European version of the US diversified bond fund shows an organic growth rate of -19.74%, which implies that the fund has lost nearly a fifth of the assets held at the start of the year to redemptions.
  • The BlackRock ISF Developed World Index posted EUR 871 million in net new money, the highest inflows of any long-term fund in August.
  • With net inflows of EUR 17.4 billion, JPMorgan tops the list of asset-gatherers year to date, followed by BlackRock (EUR 16.1 billion) and Franklin Templeton (EUR 11.6 billion).

Ali Masawah, from Morningstar’s European Fund Flows team comments: “August’s open-end asset flows data makes apparent the impact of the tapering debate. European investors shunned emerging-markets equities and bonds and invested in allocation funds and alternative products. Notably, previously unloved fund categories European and Eurozone large-cap equities have profited from the stampede out of emerging-market assets. Looking ahead, it remains to be seen if the Federal Reserve’s September 18 refusal to slow down asset purchases will calm investors and reverse this trend.”

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