Sunday, August 26, 2012

Fund Flows: Investors Go Defensive

Investors ended 2011 by taking more defensive positions, especially in bonds, a strategy that some analysts at EPFR Global expect should continue in 2012.

In the final week of December, EPFR Global says, U.S. equity and bond funds attracted “the bulk of what fresh money was committed,” totaling about $2.4 billion. Fund groups associated with Europe, the emerging markets and other riskier asset classes extended the outflow streaks that, in some cases, stretched back to the second quarter of 2011.

Equity funds tracked by the Boston–based research group took in a total of $412 million for the week ending Dec. 28, while bond funds drew $1.98 billion. For the full year, U.S. bond funds had net inflows of $62.3 billion in 2011 vs. $171.6 billion in 2010. They attracted about $9.04 billion in assets in the final quarter of last year. 

Globally, bond fund flows were $6.3 billion in the fourth quarter and $110.7 billion in 2011 vs. $354.3 billion in 2010.

Overall, says EPFR, “the pendulum swung with often dizzying speed between risk aversion and hunger for yield” in 2011. The two constants, the group notes, were “aversion to European bonds and appetite for debt carrying an implicit or explicit guarantee from the U.S. government, with Europe bond funds posting record-setting outflows while mortgage-backed bond funds enjoyed record inflows.”

High-yield bonds and municipal bond funds saw about 20 weeks of outflows in early 2011, but then ended the year with more than 15 weeks of inflows. Flows into U.S. bond funds, for instance, were spurred on by events in Europe, which “triggered a flight to safety.” Investors also recovered their appetite for municipal debt and put over $14 billion into this fund group during the final four months of the year.

Emerging-market bond funds also had a mixed year, while European bond funds “suffered net redemptions [in] 46 of the year’s 52 weeks and broke their previous full year outflow record set in 2008,” with about $30 billion in net outflows in 2011.

Other Investments

As for equity funds, U.S.-focused funds took in $3.7 billion in the fourth quarter. For the year, though, they had net outflows of $76 billion–up from outflows of $49 billion in 2010.

Equity funds concentrated in emerging-market investments had outflows of $7 billion in the final quarter of 2011.  For all of 2011, they lost $47 billion–after attracting nearly $96 billion in 2010.

The developed economies overall saw their equity funds lose about $2.6 billion in fourth quarter. The full-year flows were -$31.4 billion vs. inflows of nearly $9 billion in 2010.

Money-market funds had inflows of close the $40 billion in final quarter of 2011, though they had outflows of nearly $110 million for all 12 months of last year. (They lost $500 million in 2010.)

Gold and precious-metals funds had outflows $1.6 billion in the fourth quarter, though they had total inflows of $8.1 billion for the year. That was down about 50% from previous year’s $16 billion.

Utilities-sector funds experienced inflows of close to $260 million in Q4’11 and almost $4 billion in 2011 vs. outflows of $1.3 billion in 2010. “During the final week of December, utilities-sector funds were “the only group to post inflows, capping a year that saw these funds take in 272% of the previous inflow record set in 2006,” according to EPFR.

The Dow Jones Utility Average ended 2011 up 14.74% in 2011, its best yearly performance since 2007. The Dow Jones Industrial Average rose 5.53% last year. 

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