Data ‘not a clear sign’ of great rotation

Risk2Signs of a sustained appetite for investment risk are coming out of the US mutual fund market.

In February a net $51.9 billion (€40 billion) flowed into long-term open-ended mutual funds - which excludes money market funds – and built on January’s record inflow of $87.2 billion.

Though taxable bond funds topped all asset classes in February with inflows of $18.6 billion, data from Morningstar show international stock funds – with $16.5 billion - were not far behind.

The figures are published against the backdrop of what some people have called the start of a “great rotation” out of bonds into shares.

Morningstar says that within its categories, diversified emerging markets funds saw the strongest inflows in February, collecting $6.2 billion.

“Risk-off” categories such as precious metals, money market, and government bond funds saw outflows.

“Even though it may not be a clear sign of a rotation out of bonds and into stocks, investors are taking on more risk,” says Morningstar. “Precious metals, money market, and most government bond funds saw outflows, while bank loan and emerging-markets bond offerings captured new assets.”

Even less diversified offerings like sector funds also saw strong inflows.

The fact that mutual funds are largely retail products may add to an argument earlier this week that if there is a great rotation, it is a retail phenomenon.

JLT Pension Capital Strategies (JLTPCS) produced data to show that the average allocation to bonds among FTSE 100 pension schemes has risen from 33% six years ago to 56% at the end of 2012.

“What is clear is that the so-called ‘great rotation’ out of bonds into equities is a retail investment phenomenon and that the inverse rotation is very much at work across UK pension schemes,” said Charles Cowling, managing director at JLTPCS.

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