Bonds benefit as funds ease back on shares
The worldwide search for yield has also resulted in bonds recording their second-largest net inflow of funds in five years during the fourth quarter of last year, a global survey shows.
About 57 per cent of global fund managers, a fall from 75 per cent in the previous quarter, were holding an overweight position in equities in the second quarter of this year, the HSBC survey released on Thursday found. While no fund manager was underweight in shares, almost half took a neutral stance compared with 25 per cent in the first quarter.
"It is a little bit more centred and balanced than the last quarter, but there's still a fair amount of optimism towards equities," HSBC Bank Australia's head of wealth management, Mike Danby, said. "On the value stakes, there are still strong fundamentals in play as well."
Fund managers were more positive about equities in emerging markets, increasing their overweight positions in the second quarter to 57 per cent from 29 per cent in the previous three months.
"Since 2007, emerging market economies have accounted for more than 50 per cent of the world's growth. There is an ongoing growth story and good strong fundamentals," Mr Danby said.
In contrast, fund managers moved towards a more neutral stance in the North American and European markets.
In the fixed income market, there was a big shift towards Asian local currency bonds, with 75 per cent of fund managers turning overweight from 33 per cent in the first quarter of this year.
Net fund flows into Asian bonds rose 10.7 per cent in the fourth quarter of last year as bond funds recorded their second-largest net inflow - a total of $US55.9 billion ($54.5 billion) - in five years.
"The strong flows to bond funds reflect that investors are still seeking yield amid the low interest rate environment," Mr Danby said.
Funds under management of the 10 fund managers surveyed grew 3.2 per cent to almost $US4 trillion in the fourth quarter of last year.
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The article says shares have lost some appeal as lingering concerns about the eurozone debt crisis make fund managers more cautious. The HSBC survey found fewer managers holding overweight equity positions, and many moved to a neutral stance compared with the previous quarter.
Fund managers shifted strongly into Asian local currency bonds—75% were overweight in the second quarter versus 33% in the prior quarter. Net flows into Asian bonds rose 10.7% in the fourth quarter, driven by a global search for yield in a low interest rate environment.
HSBC’s survey found 57% of global fund managers were overweight equities in the second quarter, down from 75% the previous quarter. None were underweight, but almost half adopted a neutral stance compared with 25% in the first quarter, suggesting a more balanced outlook.
Fund managers became more positive on emerging markets, raising their overweight positions to 57% from 29% in the prior three months. HSBC’s Mike Danby noted that emerging market economies have accounted for more than 50% of global growth since 2007 and show strong fundamentals.
According to the article, fund managers moved toward a more neutral stance in both North American and European markets, reducing the relative enthusiasm they previously showed for these regions.
Bond funds recorded their second-largest net inflow in five years in the fourth quarter, totaling US$55.9 billion. This matters because it shows a meaningful shift of investor money into fixed income as people seek yield amid low global interest rates.
The article links the search for yield to the low interest rate environment. With rates low, investors and fund managers are moving money into bond funds—especially Asian bonds—to try to find better yield opportunities.
The 10 fund managers covered in the survey saw their funds under management grow by 3.2% in the fourth quarter, rising to almost US$4 trillion, reflecting the flow of assets into different markets and strategies during that period.
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