September 7, 2012 / 8:17 AM / 7 years ago

Savings flow out of Japan mutual funds in August

* Net outflows total $2 bln in August reverse steady inflows

* 57 percent of personal assets held in low-yield savings

* Funds creating high-yield structures to attract retail

By Chikafumi Hodo

TOKYO, Sept 7 (Reuters) - Investors withdrew a net $2 billion from Japan’s domestic equity mutual funds sector in August, its first net outflow in six months, while steadily pouring money into emerging markets and real estate funds, managers said.

Japanese retail investors in Japan’s $750 billion mutual fund market will direct their cash into low- and middle-risk mutual funds to avoid high-risk products while Europe’s debt problem persists and uncertainty dogs the outlook of the U.S. and Chinese economies.

Real-estate investment trusts and Australian funds drew big inflows from Japanese retail investors between January and June, but inflows have slowed down since July, said Shoko Shinoda, a senior research analyst at Lipper, a research house.

According to Lipper, the Japan-domiciled equities mutual funds market saw its first net outflow in six months in August. Net outflow totalled 157.3 billion yen ($2.01 billion) during the month, a reverse from a net inflow of 50.8 billion yen in July.

Cumulative inflows into mutual funds of non-domiciled equities totalled 1.56 trillion yen from April to July, a sharp reversal after suffering consecutive outflows totalling 805.7 billion yen over the six months to March, Investment Trusts Association data showed.

“We’ve been seeing solid inflows since the start of the year, but the scale of inflows is not strong as we’ve seen from 2009 to the early part of 2011 when large amounts of money went into double-decker currency hedged mutual funds,”

Many investors continue to invest in “double-decker” funds, which bundle high-return assets and high yielding currencies to achieve high yield.

More adventurous investors opt for higher-risk “triple-decker” funds that include derivative structures to generate higher returns. The triple-decker fund adds a covered-call option strategy to double-decker funds. The covered-call option strategy allows lighter downside risks when the market is falling, but boosts returns on the upside.

“It’s too early to say whether this is a major trend like we’ve seen in double-decker funds, but we can say that mutual funds with a covered call have clearly provided a solid footing to support the overall value of the market,” said a senior official at a Japanese brokerage company’s fund distribution section.

“Investors are showing interest in the triple-decker with covered call as they think that the yen’s rise will be limited. They are looking for chances to gain capital when the yen starts to weaken in the long run.”

Asset managers have taken to structuring high-yield products to attract retail flows into the mutual fund sector to increase its assets under management.

The market has struggled to attract investment from cash- rich Japanese retail investors mainly due to the slump in Japanese equities over the past 20 years, fund industry analysts said.

Japanese individuals hold a massive 1,500 trillion yen ($19 trillion) in personal assets of which 57 percent is held in low-yielding bank and postal savings, while less than 4 percent is invested in mutual funds, Bank of Japan data showed. ($1 = 78.3150 Japanese yen) (Editing by Eric Meijer)

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