Funds flow to bonds. Why?

The largest bond manager in the world, PIMCO, is cleaning up. Figures from researcher and data provider eVestment Alliance show that institutional investors put more than twice the amount of money into US fixed-income funds in the past three months than any other asset class.

Notwithstanding the rhetoric of pension funds around the world that they are rebalancing to growth assets, particularly into emerging markets equities, the evidence is they continue to increase their fixed-interest exposures despite historically low yields.

The eVestment report, drawn from pension fund flows across 15 asset classes in major markets, shows that total fund flows into US fixed income was $38 billion in the latest quarter to September. This compared to about $17 billion going into emerging markets equities and another $14 billion into global fixed interest.

US-based global fixed-interest specialist PIMCO, occupied four of the top five positions for funds flows to individual manager funds or strategies. The only other fund in the top five, at number two, was a passive US large-cap equity product from BlackRock.

The two least attractive asset classes for institutional investors during the period were EAFE (Europe Australia and Far East) equities, with minus $20 billion, and all US equities, with minus $26 billion.

While emerging markets enjoyed positive flows, global equities in general did not. The figures show a negative $7 billion flow to global equities and other small negative flows to UK, Japanese and Australian equities. Asia Pacific equities had a positive flow of $5 billion.

The popular individual fund for investors’ new money in the period was PIMCO’s ‘Core Plus: Total Return Full Authority’ fund. Short-term bond and cash funds generally suffered net outflows.