Calastone: Fixed Income Funds Suffer From Market Volatility As Investors Pull £130m

Investors redeemed £128m from bond funds last month, while safe-haven and high-yielding money market funds brought in a net £189m.

The outflows from bond funds come on the back of a weak August, when investors pulled a net £330m of their fixed income holdings. Between January and July, investors poured £4.7bn into bond funds. 

According to Edward Glyn, head of global markets at Calastone, the bond markets are "in the driving seat at the moment".

IA: Inflows into trackers double in August as fixed income funds revert to outflows

"One moment, inflation coming in better than expected or central banks hitting pause on interest rates causes a bond market rally. The mathematical alchemy that links bond yields to stock market valuations, as well as investor hopes for a soft economic landing, give equities a boost," he said. 

"The next moment, policymakers take the punchbowl away with a warning that rates will stay high for the foreseeable future - bond yields surge and equity markets sag. Clear signs of sustained disinflation accompanied by a definitive turn in the rate cycle seem to be top of the wish list for market bulls at present."

Equity funds were hit by a fifth consecutive month of outflows, with £206m pulled in September. However, the outflows were the least severe since February this year. 

Among geographical sectors of equity funds, UK-focused funds saw the largest outflows, with redemptions of £448m. Meanwhile, investors withdrew a net £285m from the North American fund sector.

"The distaste for UK equities is a structural trend that domestic and international investors are unwilling to break, despite attractive valuations, but outflows from North American funds only began in earnest with the bear market in 2022," Glyn added. 

Calastone: ESG funds suffer record £953m outflows in August

Mixed asset funds had their worst month recorded by Calastone, losing £1.04bn. The recent trends with equities and bonds have led to the risk/reward profile of mixed asset funds no longer being attractive.

ESG funds followed suit, recording outflows for the fifth consecutive month. Investors redeemed £485m from their ESG equity holdings, almost half of which came from North American ESG funds.

Global funds and emerging markets remain popular this year, with inflows of £981m and £284m in September, respectively. Year-to-date, emerging markets funds have attracted £2.3bn.

RECENT NEWS

What A Rising VIX Means For Pension Funds

Wall Street’s latest selloff has moved beyond a technology-sector wobble and become a broad market event. The Nasdaq C... Read more

Behaviour Cannot Fix A Portfolio Construction Flaw

A Retiree Shouldn't Be Asked to Behave Their Way Out of a Portfolio Construction Problem Why behavioural coaching shoul... Read more

Behavioural & Retirement Portfolio Resilience

Behavioural Survivability and Retirement Portfolio Resilience Why the lived experience of market recovery matters as mu... Read more

Australia's Rate Rise Bites: Highest In 15 Years

The Reserve Bank of Australia has lifted interest rates to their highest level since 2011, and its governor admits the w... Read more

October Retirement Portfolio Resilience Assessment

Markets stabl Read more

Gyrostat September Retirement Portfolio Resilience Assessment

September Retirement Portfolio Resilience Assessment Markets have fallen. The price of risk has risen. ... Read more