Tough Q1 ends with whimper as investors step back from bonds, stocks: BAML

[LONDON] Investors ended a tough first quarter on a cautious footing, pulling cash out of equity, fixed income and money market funds in the final week, Bank of America Merrill Lynch said on Friday.

The main beneficiaries in the week to March 30 were a range fixed income funds - investment-grade, emerging markets and inflation-protected bonds - but that was outweighed by a sizeable outflow from Treasury and government debt funds.

Last week typified the trend in fixed income during the quarter - "a tale of two markets", according to BAML, in which government and Treasury bond fund flows mostly diverged from credit, EM and inflation-protected bond fund flows.

Investors pulled US$1.6 billion from Treasury bond funds, the sixth straight week of redemptions and $400 million more than the total directed towards investment grade, EM, TIPs and municipal bond funds combined, BAML said.

The first quarter was one of the most volatile starts to a year for financial markets in living memory, a period of turbulence that tightened global financial conditions and put a pause on the US interest rate-raising cycle.

It was also a quarter of two halves. The first six weeks saw markets plunge, spreads widen and financial conditions tighten dramatically. Since mid-February stocks and commodities have rallied and spreads have narrowed again.

Overall, global bond funds rose 5.5 per cent in the quarter, BAML said, far outperforming stocks (+0.4 per cent). The biggest winner was gold, which rose 16.1 per cent in the quarter.

The net inflow into gold funds in the last week was a tiny US$32 million, but it still marked the 12th consecutive weekly inflow.

Equity funds lost US$2.6 billion in the latest week, led by a US$2.0 billion outflow from European funds. That was the eighth consecutive outflow and marked the longest streak of redemptions in almost three years, BAML said.

Money market funds posted an outflow of US$13.6 billion in the latest week, the fifth outflow in a row, BAML said.

In the first quarter, investors pulled US$50.35 billion out of global equity funds and US$46.69 billion out of money market funds. Fixed income and commodities funds attracted net inflows of US$27.69 billion and US$15.53 billion, respectively, BAML said.

REUTERS