As risk averse investors turned their backs on equities in April, bond funds have become the main beneficiaries of this atmosphere of caution, according to research from London-based fintech Calastone.
Although share prices have been rising since the start of the year, investors added just £62.7 million (€73 million) to equity fund holdings, bringing the total year-to-date value to £169 million.
A “drop in the ocean” compared to the approximate £700 billion held in funds in equities it has been “the weakest start to a year for equity funds” in the four-year existence of Calastone’s fund flow index (FFI), said Edward Glyn, head of global markets at the company.
Between January and April last year, investors added £4 billion to equity funds, despite volatile stock market conditions, marking a stark contrast to sentiment so far in 2019, according to Calastone’s latest FFI.
“This is not to say investors are not actively engaging with their equity fund holdings,” Glyn said. According to the firm, April saw the “highest two-trading of equity funds on record, as a total £17.4 billion turned over” signifying significant switching between different types of equity funds.
Net inflows into UK equity funds were “almost matched by net selling of equity income funds, whereas European equity funds suffered outflows for the seventh consecutive month, with £252 million withdrawn.
“Caution is the name of the game at the moment as we see investors shy away from risky funds,” said Glyn.
Global bond funds, however, enjoyed inflows. According to Calastone, the asset type has been “the main beneficiaries of investor caution on equities” with fixed income funds seeing the highest net inflows since May last year, with £824 million invested.
For UK investors, risk aversion remains a key theme. The riskiest categories of funds saw £309 million of outflows in April, the data found, while low and moderate risk funds saw inflows.
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