Lipper’s Global Fund Flows report, reporting on October-end mutual fund data, has been produced. Global mutual fund assets under management (AUM) rose for a third consecutive month to US$28.2 trillion. All asset types except commodity performed reasonably well during October as investors enjoyed a second month of steady growth.
Equity funds continued to impress and for the month added a further US$21.5 billion of net sales, despite a Q3 turnaround in bond fund performance. Net sales of bond funds were negative by US$38.8 billion, continuing a trend of very large monthly net outflows for this fund type. Global bond funds lost an estimated US$157.8 billion net in the last six months.
So, why is it that bond funds are still leaking money? With continued weak economic growth and the incentive for U.S. monetary policy to remain “assistive,” there doesn’t seem too much danger of any foreseeable significant or at least predictable bond losses akin to those seen in the summer. One explanation is the rate at which equity funds grew in relation to bond funds, looking at the change in assets outside of sales. In the past quarter equity mutual funds put on a healthy 7.0%, compared to a moderate 2.7% for bonds. Looking at the last year to October-end, the figures were even more revealing: 21.0% increase for equity funds, 0.6% loss for bond funds. However, the opportunity cost of staying in bonds compared to other investments seemed to be getting a little high for some investors to resist heading for the exit door. The last five years showed the remarkable marketing success of global bond mutual funds: circa US$2 trillion of estimated net sales. Many investors might now feel a little let down, with only moderate rewards having been reaped at supposedly the best of bond times. Over that same five-year period we saw—in stark contrast—a meager net US$100 million invested in real estate mutual funds, but the reward of 21.8% in performance terms was very similar to that of bond asset types over that period (+21.4%) but nowhere near the 81.5% enjoyed by equity.
The Lipper Global Classifications reveal more of the plot and reinforce the resurgence of equity funds as leading sellers for October, especially global, European, and equity income funds. The only net positive bond sectors were high-yield types, but those sectors did not perform as well as the neglected emerging-market bond peer groups, e.g., Bond Emerging Markets Global LC (+4.3% performance for October but corresponding net outflows of US$3.2 billion). The Equity Asia Pacific Ex Japan sector was another strong performer in recent months, but the trend of monthly outflows here was exponentially receding; this sector looked like it might well record positive net sales as soon as November—watch this space. Equity US Small- and Mid-Cap was the fourth best selling sector and also performed very well over the past year (+30.4%).
The global market fund report is now produced with promoter provenience aggregations. These assign the assets to the origin country of the promoter—where a global company is most likely to have its head office. The change in market share shows that U.S. and U.K. companies gained headway in the last five years at the expense of their competition in continental Europe. The combined share of France, Germany, Switzerland, and Italy was 17.36% for October 2008; now it is only 12.97%. The U.S. in particular has ploughed ahead, making strong gains in bond fund market share (+4.45%). Most of these bond gains in the U.S. are seen to have been driven by net sales, but large gains on the equity side have come mainly from performance. No wonder, then, that the humble bond fund is now on the wane.