Fixed Income

Fund flows demonstrate a defensive 2011

Analysis of asset class and sector fund flows in 2011 reveals investors’ propensity to flock to defensive assets, according to data from EPFR Global.

Emerging market equities revealed the biggest difference year on year, with outflows of $47.7 billion for 2011 contrasting with inflows of $95.6 billion for the previous year.

The emerging markets equity funds tracked by EPFR Global ended 2011 with their seventh consecutive weekly outflow with uncertainty around Europe, China’s prospects this year, and high levels of inflation all cited as drivers.

Developed market equities also had significant outflows of $123 billion for the year.

All bond funds saw inflows of about $110.6 billion, with US bond funds attracting $62.3 billion for the year.

European bond flows saw a record outflow for the year of $29.8 billion, with the previous year recording inflows of $3 billion.

Within sector funds, commodities also attracted significant inflows, with about $12.8 billion for the year, with currency hedging being the significant motivation.

EPFR Global tracks traditional and alternative funds with about $13 trillion in assets.

Meanwhile State Street’s Investor Confidence index reveals a changing risk appetite from 2010 to 2011. At the end of 2011 the index was 99.3 and a year earlier it was around 104.5.

The index, which was developed by Harvard University professor Kenneth Froot and Paul O’Connell of State Street Associates, measures investor confidence, or risk appetite, by analysing the buying and selling patterns of institutional investors.

The index assigns a precise meaning to changes in investor risk appetite: the greater the percentage allocation to equities the higher risk appetite or confidence. A reading of 100 is neutral and represents the level at which investors aren’t increasing or decreasing their allocations to risky assets.

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