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UPDATE 1-Bond funds worldwide attract $3.3 bln over week - BofA
April 25, 2014 / 3:45 PM / 3 years ago

UPDATE 1-Bond funds worldwide attract $3.3 bln over week - BofA

(Adds analyst comments, additional flows, byline)

By Sam Forgione

NEW YORK, April 25 (Reuters) - Fund investors worldwide poured $3.3 billion into bond funds in the week ended April 23, outpacing inflows into stock funds on outperformance in bonds this year, data from a Bank of America Merrill Lynch Global Research report showed on Friday.

The inflows over the holiday-shortened week marked the seventh straight week of new demand for bond funds, according to the report, which also cited data from fund-tracker EPFR Global. Stock funds attracted $2.9 billion in inflows over the week.

Investors reached for higher-yielding credits and poured $1 billion into high-yield junk bond funds, marking the 11th straight week of inflows into the funds and dwarfing the prior week’s inflows of $100 million.

“Bond returns, especially for high yield and for credit, seem to have been pretty strong,” said Keith Berlin, director of fixed income at investment advisory firm Fund Evaluation Group in Cincinnati, Ohio.

The benchmark Barclays U.S. Aggregate bond index has risen 2.5 percent this year through Thursday, while the Barclays U.S. Corporate High Yield index has risen 3.5 percent. The benchmark Standard & Poor’s 500 stock index has risen just 1.6 percent over the same period.

“The credit markets are in the process of moving from greed to extreme greed,” Berlin said. “People buying high yield right now are not being compensated well for the risk,” he said. Berlin said his firm recommended selling high-yield bonds in late 2013.

Emerging market bond funds attracted $200 million, marking their fourth straight week of inflows. Floating-rate loan funds, which are protected from rising interest rates by being pegged to floating-rate benchmarks, posted $200 million in outflows, the first time since June 2012 that the funds have seen an outflow for two straight weeks.

Analysts have said that recent dovish comments from the Federal Reserve have eased fears that the central bank will hike interest rates sooner than expected, sapping demand for floating-rate loan funds.

The inflows into stock funds marked their fourth straight week of new demand. Emerging market stock funds attracted $400 million in new money, marking their fourth straight week of inflows, while European stock funds attracted $1.2 billion, marking their 43rd straight week of inflows.

“This should be the first year of meaningfully positive earnings growth in Europe,” said Chris Konstantinos, head of international portfolio management at RiverFront Investment Group in Richmond, Virginia.

He said that sentiment toward emerging market stocks picked up after hitting a “pessimistic extreme.” Investors sold emerging market stocks and pulled cash out of emerging market stock funds in much of the first quarter of this year.

Funds that specialize in U.S. stocks posted outflows, meanwhile, of $500 million. The outflows were all via mutual funds and marked the second straight week of withdrawals, despite a rebound in U.S. stocks over the weekly period.

“The U.S. has been the best performing major market in the last five years by a long shot,” said Konstantinos of RiverFront. “Increasingly, investors are going to be looking overseas for value,” he said.

The benchmark Standard & Poor’s 500 stock index recovered 0.7 percent over the weekly period after having fallen 1.5 percent over the previous two weeks.

Money market funds, which typically invest in safe short-term securities, attracted $15 billion in inflows, marking their first inflows in six weeks. Investors have pulled $103 billion out of the funds so far this year, according to the report. Investors have pulled cash out of the funds in recent weeks to pay income taxes, analysts have said.

Precious metals funds posted small outflows of $75 million after attracting $100 million in inflows the previous week. Gold prices fell to a 2-1/2-week low on April 21 on strength in the U.S. dollar and outflows from the world’s biggest bullion-backed exchange-traded fund. (Reporting by Sam Forgione; Editing by Chizu Nomiyama)

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