Investors are pulling money out of risk assets as the growth they had predicted via central bank activity has failed to materialize, fund flow data has shown.
High-yield bonds funds along with European and emerging market securities saw large outflows in the last week of the third quarter, data monitor EPFR said. The fleeing capital was instead sent to money market and investment-grade bond funds. Flows to these sectors hit their highest levels since the last quarter of 2012 and the first three months of 2010, respectively.
"Investors who began 2014 looking out at what they believed to be the sunlit uplands of accelerating growth are going into the final three months of the year wondering if they'd been looking at a mirage," EPRF's end-of-quarter report said. "Most of the uplands they had pinned their hopes on, ranging from Europe's modest recovery to Japan's aggressive efforts to reflate its economy, are swathed in clouds and another cold front—the end of the US Federal Reserve's current quantitative easing program—is bearing down."
Political and economic uncertainties have concerned investors, especially regarding the position of their equity portfolios. In the three months to the end of September, European equity funds experienced their worst quarterly outflows since the start of the Euro-zone crisis in 2010.
Investors in US equities took a defensive stance and for the most part rotated out of small and mid-cap stocks to their larger peers, the data showed.
Global equity fund managers bought up financial stocks, increasing their average allocation by 4%.
Investors' love affair with high yield also appears to be over, with investment grade bond funds taking 136% of total flows into tracked fixed income products over the quarter. The figure reflected the offsetting of heavy redemptions from high yield—since July the sector has seen weekly outflows of at least $3 billion five times—and bank loan funds.
Commodities and infrastructure funds also saw gains as investors heard positive noises from the world's largest economies—China and the US—about future projects to sustain momentum in these sectors.