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Despite surreal political backdrop, fixed income fund flows in late August reflect a rise in risk appetite

With the Amazon rainforest ablaze, the president of the US floating the idea of purchasing Greenland and the British prime minister trying to suspend parliament ahead of the latest Brexit deadline, an already confusing investment climate took on an Alice in Wonderland quality in late August. Investors, however, tuned out much of the noise and – in a small way – went hunting for yield with EPFR-racked Emerging Markets Bond Funds snapping a three-week run of outflows and flows into High Yield Bond Funds hitting a five-week high.

Perceptions of Sino-US trade relations remain a major mover of markets day-to-day. But mutual fund investors are sticking to their plague-on-both-houses strategy: the fourth week of August saw US Equity Funds post their fourth outflow in the past six weeks and China Equity Funds their eighth in the past nine. The tariff hikes that have attended this dispute are also prompting investors to revisit their assumptions about inflation. A week after they posted their biggest weekly inflow since 1Q18, Inflation Protected Bond Funds posted their second biggest total year-to-date.

 

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