According to a new paper by Bank of America Merrill Lynch, volatility seems to be taking its toll on risk assets flows. “Outflows continued for another week across risk assets. The withdrawal across the credit rating spectrum is now spreading to equities,” the firm reports. Traditionally stable assets, on the other hand, continue to thrive.
Fund inflows have reportedly continued into both money-market and government bond funds. On the other hand, high grade funds recorded outflows for the sixth week in a row; also the highest in three weeks. High yield outflows slowed slightly compared to the previous week but remain negative for the eleventh week in a row. In other words, credit outflows have also been negative for eleven weeks, says the bank.
“Conversely, government bond funds enjoyed another week of inflows; the third in a row. However, the trend has slowed down recently. Similarly, Money market funds, also recorded another week of positive flows, but these were lower w-o-w. The pain in credit now seems to be reaching the equity market. Equity fund flows suffered sizable withdrawals. With over $4bn of outflows, this was the biggest one in 70 weeks, tilting year-to-date cumulative flows for the sector to negative,” the bank reports.
Similarly, global emerging market debt registered a sixth week of negative flows. “Monthly flow data for January reveal that HY’s latest outflow (in $-terms) was the biggest in 13 months, and for IG the outflow was the largest ever. While flows into equities remained positive, they were the lowest in 13 months. … On the duration front, the selloff was felt across the curve, but more aggressively on the belly. Mid-term funds recorded the highest outflow in 24 weeks and the second in a row. Long-term IG fund flows turned negative after a marginal inflow the previous week and short-term fund flows remained negative for the sixth consecutive week,” notes the bank.
In contrast BofA Merrill Lynch reports that inflows into commodity funds rose for another week. Thanks to record influxes into gold funds. The latest inflow was the highest ever – beating the previous record attained just a week ago. The asset class has seen uninterrupted positive flows for the last seven weeks.