Fixed income suffers most as bear market sets in

Global fixed income has suffered more than equities as it experiences a dramatic rise in outflows, according to new research from Calastone.

The report found that bond funds have experienced net outflows of $9.7bn between January and May 2022, which can be attributed to risk aversion and rising yields.

Equity funds have also seen outflows, reaching $1.6bn in the same period, compared to $28.7bn inflows in the same period last year. However, these have not yet reached the same level as fixed income or previous periods of outflows.

Despite fixed income making up only 19% of AUM, compared to 47% for equities, bond funds saw larger net inflows from 2019 up to this year, with $74.1bn compared to $71.6n for equities. Now, they are seeing much higher net outflows.

Outflows from European equity funds were driven by local investors, while UK asset owners were more interested in switching to income and ESG. Meanwhile, Australian and Asian investors have been more positive on equity funds, even as concerns over the Chinese economy has pushed capital out of China-focused funds.

In equities, investors are turning to ‘cash-generative blue chips' to avoid risk, with investors almost everywhere increasing inflows into income funds.

Deep Dive: Global equity income funds pick inflation winners

ESG funds have also been a beneficiary, seeing net inflows of $4.9bn up to the end of May, compared to outflows of $7.2bn for non-ESG funds. The strength of ESG funds have also helped negate some outflows from active funds, which have been hit harder by negative investor sentiment.

Edward Glyn, head of global markets at Calastone, explained: "Asset markets are exceptionally volatile at present. Periods of high volatility understandably dampen investor enthusiasm to add new capital to funds.

"It is well worth remembering, however, that net fund flows show much greater variability than overall transaction volumes. Total buying and total selling are both very big numbers so a small change in one or other of those figures can drive a very large change in net flows."