September 6, 2019

In the Hunt for Safe-Haven Assets

by Tom Roseen.

Market volatility increased in August, pushing many investors to take some of their hard-won profits off the table to pad the coffers of safe-haven asset classes. Concerns over escalating trade tensions between China and the U.S., slowing global economic growth, fiscal concerns in Italy, the possibility of a no-deal Brexit, and falling bond yields led to a whipsaw of market ups and downs. The Dow Jones Industrial Average and the NASDAQ Composite witnessed 12 trading days out of 22 that experienced market moves of 1% or more in August.

While investors continued to inject net new money into money market funds (+$12.2 billion), taxable fixed income funds (+$3.0 billion), and municipal bond funds (+$820 million), they were net redeemers of equity funds (-$2.8 billion) for the Lipper fund-flows week ended Wednesday, September 4, 2019.  Preliminary estimates for August show that in total investors were net redeemers of equity funds (including ETFs), withdrawing $46.2 billion, while being net purchasers of money market funds (+$82.0 billion), taxable bonds funds (+$13.5 billion), and municipal bond funds (+$7.5 billion).

For August, fund investors continued to gravitate toward corporate investment-grade debt funds, injecting some $15.1 billion, while turning a cold shoulder to corporate high yield funds (-$4.7 billion) and international and global debt funds (-$1.4 billion).

Nonetheless, safe-haven plays got some focus during the month, with government-Treasury funds (including ETFs) (+$4.0 billion), government-mortgage funds (+$1.0 billion), and Commodities Precious Metals Funds (+$4.0 billion) attracting net new money in August, while the old gold-miner play—Precious Metals Equity Funds—witnessed net redemptions, but handed back just $216 million.

On the fixed income side, longer-dated government issues got a shot in the arm with the yield curve shifting down considerably in August. General U.S. Treasury Funds posted a whopping 6.20% return, and General U.S. Government Funds returned 3.03% for the month of August. Meanwhile, on the equity side of the ledger, Commodities Precious Metals Funds returned 7.43% and Precious Metals Equity Funds returned 10.45%, while the average U.S. Diversified Equity Fund returned -2.96% for August.

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