Investors flocked to US equities in the latest week, pouring the most cash into these funds in a year as they decamped from other regions hit with concerns about slowing economic growth.
US equity funds took in $25.4bn in the week to Wednesday, according to EPFR Global, in a move that was enhanced by the looming expiry of major US stock futures and options on Friday, an event known as “quadruple witching hour”.
“It is people saying that it is time to head for the exits in Chinese stocks and European stocks and let’s go somewhere like US equities where [the economy] is better,” said Michael Underhill, chief investment officer at Capital Innovations. “It is a flight to safety, a flight to quality.”
Investors withdrew slightly more than $1bn from funds that focus on Chinese stocks, the second largest weekly net redemption since late July 2015. Europe equity funds, meanwhile, posted net outflows of $4.56bn, making for net redemptions in 50 of the past 52 weeks.
France equity funds have been among the trouble spots with net outflows of $243m in the latest week for the 20th consecutive week of redemptions.
Data released on Thursday for China, for example, showed that factory output rose by the weakest pace in 17 years, while retail sales growth, a measure of household consumption, remained flat.
That followed news last week from the European Central Bank that it had downgraded projections for the eurozone’s gross domestic product growth this year to 1.1 per cent from a forecast of 1.7 per cent just three months ago.
In the credit markets, risk appetite held up better, however. Emerging market bond funds took in a net $930m for the latest week while high-yield bond funds had net inflows of $1.6bn.
“Investors are trading equity risk for credit risk,” said Matthew Bartolini, head of Americas research at State Street Global Advisors.
Elsewhere, mortgage bond funds have been enjoying a renaissance this year on indications that the Federal Reserve would take a more patient approach in its plans to raise US interest rates. Investors have put more than $8.25bn into these funds since the start of 2019, equalling 4 per cent of the current asset base of almost $200bn.
Max Gokhman, head of asset allocation at Pacific Life Fund Advisors, said that yield-seeking investors were looking to mortgage bonds as a safer alternative to corporate debt where concerns about leverage levels and coverage ratios have arisen.
“If rates are going to be stable over the medium term — and we think they are,” he added, “it removes the headwinds that come from a falling rate environment where prepayments go up and a rising rate environment, which would pressure prices and potentially increase defaults.”