Introduction
Global equity funds experienced their first weekly outflows in six weeks, driven by increasing U.S. Treasury yields and growing apprehension over the nation’s debt and tax legislation, accentuated by Moody’s downgrade of the U.S. sovereign credit rating.Context
According to LSEG Lipper, global equity funds saw net outflows of $9.4 billion, a stark contrast to the over $20 billion in inflows the previous week. U.S. equity funds were the hardest hit, with redemptions totaling $11 billion, while Asian funds saw $4.6 billion in outflows. Conversely, European equity funds attracted $5.4 billion in inflows.Developments
John Higgins, chief markets economist at Capital Economics, noted that investor caution regarding the U.S. stock market has intensified in light of April’s turmoil and fiscal policy concerns. This apprehension coincided with a significant rise in long-dated Treasury yields, reaching levels not seen since 2007, following the House of Representatives' passage of a tax-and-spending package that exacerbated debt concerns.As a stark contrast to equities, global bond funds enjoyed inflows of $21.6 billion, suggesting increased investor interest in bonds at current yield levels. U.S. bond funds attracted $7.6 billion, European bonds garnered $11 billion, and Asian bonds received $1.8 billion in net inflows. Specific categories like U.S. government bond funds gained $2.8 billion, while U.S. high-yield bond funds and European corporate bond funds saw inflows of $1.2 billion and $1.5 billion, respectively.
Money market funds rebounded, bringing in $18.1 billion after the previous week’s outflows of $34 billion. However, gold and precious metals funds experienced losses again, with $1.7 billion in outflows for the third consecutive week.
Emerging market (EM) bond funds continued their positive trend, marking their fourth straight week of inflows with an addition of $403 million. Although EM equity funds faced minor outflows, they have still attracted $10.6 billion year-to-date, reflecting a 43% increase from the same period last year. Alison Shimada, portfolio manager at Allspring Global Investments, pointed out that renewed interest in EM is partially driven by concerns over the potential decline of U.S. exceptionalism and uncertainty surrounding U.S. ambitions.