Investors withdraw billions from US equity funds
Corporate bond funds also suffer as market turmoil increases appeal of government debt
Investors pulled money from equity and corporate bond funds over the past week, preferring the safety of US government debt as trade uncertainties and a re-assessment of global growth forecasts roiled US markets.
Funds invested in US equities saw $3.5bn of outflows for the week ending December 5, according to data from EPFR Global, nearly reversing inflows into such funds this year. Investors withdrew $1.8bn from US bond funds, marking the fourth straight week of outflows.
Equity markets have been rocked this week by concerns that a weekend trade truce between the US and China may be unravelling, with the S&P 500 sinking 1.5 per cent. The fears were fanned by the arrest in Canada of Meng Wanzhou, chief financial officer of Chinese tech company Huawei, in response to a US extradition request.
The turmoil helped send Cboe’s Vix volatility index, known as Wall Street’s fear gauge, back above its long-term average of about 20.
“Investors need to brace for higher volatility as the cycle matures and as US-China tensions remain elevated,” said Mark Haefele, chief investment officer at UBS Global Wealth Management.
Investors appear to have sought out the perceived safety of Treasuries, adding a combined $1.4bn to funds invested in long-term and short-term US government debt, according to the data.
Investors have dialled back expectations of further interest rate increases from the Federal Reserve amid expectations of an economic slowdown next year. The benchmark 10-year Treasury yield dipped 2 basis points to 2.90 per cent on Thursday and has fallen 34 basis points from its peak last month.
The two-year Treasury yield, which is more sensitive to Fed policy, at one point sank over 10bp on Thursday but moved upward in the afternoon to finish the day down 4bp at 2.76 per cent.
“The point you get from this is that the bond market shows a slowdown is coming,” said Andrew Brenner, head of international fixed income at National Alliance Securities.
North American bank loan funds, seen to have been a beneficiary of rising interest rates, suffered $1.2bn in outflows, a third straight week of withdrawals.
European equity funds continued to struggle as investors pulled out $675m.
“There has been a flight to the perceived safety of sovereign debt,” said Kristina Hooper, chief global market strategist at Invesco.