Cherry Reynard examines which sectors were the winners and losers last month.
September was a tale of two markets. The month started in familiar fashion with bonds retaining support and equities widely unloved.
But details of the eurozone’s purchase of sovereign bonds via the Outright Monetary Transactions programme cheered investors a little, while news that the German Constitutional Court had ratified the European Stability Mechanism also encouraged greater risk appetite.
This was crowned by the announcement of QE3 by the Fed, which put a new spin on the global economic situation and saw investors dive back into riskier assets.
Where did investors’ smart money go in September?
According to EPFR Global, investors spent the first week in September chasing yield and fretting about the weakening export numbers from Asia.
These numbers showed exports to the EU down 15% year-on-year in July. Asia continued its run of weak popularity. Asia ex-Japan Equity funds posted their biggest weekly outflows since late Q411 and redemptions from Taiwan and India Equity funds hit their highest level in over a year.
Equity funds were widely unloved and lost a net $9.9bn during the first week in September. Emerging market equity funds were a particular target.
The money was redeployed into bond funds, which absorbed $3.19bn and Money Market funds, which gathered $4.6bn. There were some speculative flows on the back of quantitative easing expectations. Europe Bond funds posted their biggest inflow in 13 weeks, for example.
This all changed later in the month. Flows into EM debt and equity funds rose substantially after eurozone and US policymakers’ action. This slowed within a week, but was enough to push up riskier assets.
The month’s performance tables were dominated by ‘risk-on’ assets – smaller companies, Asian equities, European and Chinese equities, and high yield bonds. At the bottom of the heap were UK gilts, particularly index-linked gilts. The worst-performing equity markets were Japan and the US.
It was a similar picture in Europe. According to Morningstar data, investors had resolutely avoided equities in August and sent €16.95bn into bond funds.
Although this was marginally less that July, it showed that investors still do not believe those who suggest fixed income markets look over-valued and are nearing the end of their bull run.
Morningstar bond strategist Dave Sekera, said the ECB’s readiness to purchase troubled European sovereign debt “will probably force corporate credit spreads tighter as this new liquidity looks for a home.”
Asset allocation funds continued their strong run. Investors continue to show a preference for funds where the asset allocation thinking is done for them. Alternative funds also saw strong inflows, up €713m, according to Morningstar.
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