Flows into bond funds reached their highest point in five years amongst Asian investors as ongoing market uncertainty from Europe and US has caused sentiment to trend towards fixed income, according to a report by the Hong Kong Investment Fund Association.
Gross sales into bond funds made up 68% of the industry in the first seven months to July this year whilst 21% were made up of equities. This shows a turnaround in investor sentiment from 2008 when 64% of gross sales went to equities and only 16% to bond funds in the twelve month period.
A more cautious investor sentiment has seen increased demand for 'more meaningful' returns, commented Lieven Debruyne, Chairman of the HKIFA.
'The extremely low interest rate environment has prompted depositors and investors to look for products that can offer returns that are more meaningful,' said Debruyne. 'Against this backdrop, bond funds have come in to fill this gap and have played an important role to help address investing needs.'
From 2008 to 2011, gross sales for bond funds increased on a yearly basis. In 2011 sales reached €12 billion compared with €2 billion in 2008. In the first seven months of this year, total sales already exceeded €14 billion.
Amongst all bond categories, global bond funds led the way in terms of highest volume sales followed by high yield bond funds. European bonds were the only bond sector to see outflows this year.
Risk back in vogue?
Gross sales of equity funds reached €4.5 billion in the seven months to July, 49% lower than in the same period last year. More than half of the equity categories registered net outflows with home market equity funds seeing the highest losses.
The bias towards fixed income by Asian selectors stands in stark contrast to results published by HSBC Global Asset Management on Wednesday which showed fund managers are opting for benchmark positions in bonds and equity allocation following central bank policy that could support riskier assets.
Yet speaking to Citywire Global, Sally Wong, CEO of the Hong Kong Fund Association said the results are due to shift as popularity amongst investors for safer assets is set to ease, aligning itself with wider market sentiment.
'With another round of QE from the US, the bond-buying programme from Europe and monetary easing measures by Japan and other countries, more investors will start to move into risk assets,' she said.
'We already see some pick-up in interest in equity funds, such as US and Asian equities but we don't expect massive inflows into these products as it will take time for investors to warm to these products - especially after the volatility in the past few years.'