Funds hit by outflows as risk aversion returns

hand_sandUcits funds across all asset classes were hit by €23bn of outflows in May, said the European Fund and Asset Management Association (Efama) but data from EFRP showed money markets funds posted inflows in July, indicating investors are  coming back to the market through low-risk products.

Figures from Efama showed that in May this year long-term Ucits products, excluding money market funds, experienced net outflows of €8bn for the first time since March 2009.

Uncertainty over sovereign debt issues in Europe and the risk of contagion fuelled outflows from equity and bond funds, of €11bn and €2bn respectively.

Data from EPFR,  a data provider,  found that the outflow trend continued through June as investors pulled a six-week high of $976m (€752m) from global equity funds during the third week of the month. The data provider said this reflected investors’ fear around Europe, since this fund group allocates more than a third of the average portfolio to the region.

Lipper FMI said in a statement: “The Eurozone’s sovereign debt crisis and its risk to economic recovery created apprehension in the market in May, thereby affecting investors’ appetite for risk.”

Hesitation on behalf of investors was not just felt in Europe, but the world over as investors have begun to flock to lower risk products. Data from EPFR showed that money market funds experienced strong inflows in July, hitting a 78-week high of $33.5bn.

But figures from Lipper FMI showed that even these lower risk investments had suffered in May, as outflows rose to €14bn, from €7bn in April.

Keith Wade, chief economist at Schroders, spoke about the return of risk aversion. He said: “Doubts about sovereign creditworthiness and the economic recovery have led to a torrid performance from equity markets in the second quarter. With government bonds in the US, Japan and Germany rallying, risk aversion has increased sharply. Markets are already behaving as if we have gone back into recession. The more risk-averse areas have outperformed, and equity valuations are looking attractive again.”

©2010 funds europe

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