Bond fund sales grew at a record pace with $350 billion in net inflows during the first half of 2012, according to Strategic Insight, a New York-based research firm. The trend is most dramatic in Europe, where investors are migrating to high-yield, emerging and global debt, according to the firm.
Chicago-based Morningstar reported a spike in U.S. taxable bond inflows in July, which more than doubled to $23.6 billion from $10.9 billion in June. High-yield bond funds accounted for nearly $4.7 billion of the taxable bond inflows. The multisector and emerging markets bond categories added $2 billion and $1.9 billion, respectively, Morningstar said.
Perceptions of bonds as "safer" income-producing investments remain supported by high levels of equity volatility, according to Strategic Insight. In Europe, equity funds had negative returns in eight out of the twelve months ending in May, a ratio not seen since the 2008-09 financial crisis. Although equity funds recorded net redemptions lately in aggregate, several individual products achieved high cash inflows during the past two quarters, particularly with global, Asia, emerging market, and dividend equity themes, Strategic Insight said.
For its part, Morningstar said that U.S. stock outflows declined slightly in July, to $8.2 billion compared to $8.5 billion in June.
Morningstar also said that international stock inflows were flat for July, although diversified emerging-market equity funds took in over $1.3 billion. However, momentum has been slowing since February when the category welcomed nearly $3.2 billion in new money. Inflows for municipal bond funds remained steady at $5.5 billion, which is close to the group's long-term range. Money market funds turned in their strongest month of the year, collecting a robust $30.6 billion. July marked the group's first substantial inflows since December's $37.2 billion.
Meanwhile, as fund managers try to meet the demand for income solutions, they are addressing the evolving risks including potential outcomes during future periods of inflation and rising interest rates. "Investment companies are encouraging diversified sources of income with increasingly flexible approaches, and more specialized bond strategies," said Jag Alexeyev, head of global research at Strategic Insight.
These include emerging corporate debt, local currency, short-duration high yield, emerging Asia and Renminbi products, flexible/multi-sector income, bond-centric absolute return, fixed income with macro overlays, long/short and alternative credit, socially responsible income, and target date bond structures, said Strategic Insight.
Mary Schroeder writes for Securities Technology Monitor.