Opalesque Industry Update - Bond fund sales around the world are continuing at a record pace with $350 billion in net inflows during the first half of 2012, according to Strategic Insight, a business intelligence provider to the global fund industry. Exposures are changing most visibly in Europe where investors are migrating to high yield, emerging and global debt. These categories are capturing two-thirds of bond fund inflows, and account for 37% of bond fund assets in Europe compared to 20% in 2004. |
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,” says 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. Alexeyev adds that firms with significant or concentrated sales are becoming more proactive about managing capacity, and developing multiple capabilities around their flagship funds.
In the past three years, over eighty actively-managed bond funds in Europe achieved at least €1 billion of net inflows each, serving as “flagship” investment products for more than forty companies. Together, these flagship income funds collected $335 billion (€230 billion) of combined inflows since early 2009.
Perceptions of bonds as “safer” income-producing investments remain supported by high levels of equity volatility. 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.
Importantly, many fund managers are expanding their commitments in select global markets, especially in Europe where competitive and regulatory changes are opening up opportunities. International managers are becoming more active across Europe as the region’s banks rethink the role of their in-house fund units, and as advisory models gravitate towards fee-based arrangements. Long-term fund inflows exceeding $730 billion (€530 billion) over the past three years in Europe and cross-border, achieved despite the slowdown since last summer, provide further encouragement for strategic expansion plans.
Around the world and across all long-term asset classes excluding money markets, funds collected nearly $400 billion of net inflows during the first half of 2012. With continued demand for income and diversified investments, the second half of the year could bring a similar level of commitments.