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Needle swings towards Equity Funds in late September

Although a few weeks do not add up to a great rotation, 3Q20 ended with a marked shift in flows as EPFR-tracked Equity Funds attracted five times the amount of fresh money that Bond Funds absorbed. The week ending Sept. 30 saw inflow streaks stretching back to late June and early April come to an end for Emerging Markets and Global Bond Funds while Emerging Markets and Global Equity Funds both recorded solid inflows.

The idea of a ‘Great Rotation’ from fixed income to equity, which came to the fore in 2013, is based on the assumption that the yield compression triggered by ultra-accommodative monetary policy will force investors to move money into stocks which, though riskier and more volatile, offer more scope for appreciation. Mutual investors have proved resistant. Since 2010 EPFR-tracked Bond Funds have attracted a net $2.6 trillion versus a collective outflow of $55 billion for Equity Funds. However, with 30-day yields on taxable Money Market Funds back at 2 basis points, nine-month US bank CD’s offering 0.8% or lower and investors paying for the privilege of lending the German government money all the way out to the 30-year mark, anticipation of a major rotation is building.

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