(November 19, 2012) — Investors have moved out of United States equities and corporate bonds of all but the highest quality, as budget questions linger in the world’s largest economy and poor data squeezes Europe and Japan.
Flows out of US equity funds hit $7 billion last week, according to data monitor EPFR, as the dust settled after the country’s election and the so-called Fiscal Cliff came looming back into view.
Overall, redemptions from all equity funds around the world hit their highest level since the week before US Federal Reserve Chairman Ben Bernanke announced the nation’s third round of Quantitative Easing in September.
The only equity funds to receive a boost last week were those investing in Japanese markets, where investors were betting on a surge following the announcement of a general election in an attempt to beat a budget-decision impasse, EPFR said.
High yield bonds, which had received a shot to the arm earlier in the month, saw mass redemptions from US investors who were wary of taking excessive risk. European investors, on the other hand, ploughed more into the asset class as some newly issued strong government bonds in the region saw yields turn negative this month.
However, over the longer term, research from investment consultant bfinance showed investors are set to move away from developed market economies all the way up the risk scale.
A survey of institutional investors in North America, Europe and the Middle East by the firm showed over the next three years, investors planned to reduce exposure to developed market equities and sovereign bonds to the benefit of emerging market equities, credit, real assets, and alternatives.
Emmanuel Léchère, head of the Market Intelligence Group at bfinance, said: “Beyond diversification, the challenge for many investors is how to best understand and reintroduce risk in a calibrated fashion that recognises different types of risk tailored to different investor profiles, from the least risky to the most risky: investment grade credit, high yield, emerging market debt and finally, equities and alternatives.”
The consultants also found investors were pushing further into alternative assets, but shying away from hedge fund strategies, at least for the short-to-medium term. A net 7% of investors said they would decrease their allocation to this asset class over the next three years.