Inflows bounce back after QE doubts – for now

arrow graph upMoney flowed back into equity and bond funds in the week ending July 3, after a month when fears of a wind down of quantitative easing caused investors to withdraw their cash.

Bond funds tracked by data firm EPFR Global gained a net inflow of more than $2 billion (€1.6 billion) in the week, while equity funds took in nearly $6 billion of net new money. In the preceding four weeks, investors withdrew a net sum of nearly $60 billion from bond funds.

The inflows suggest investors believe the US Federal Reserve will not begin tapering its bond purchases in the near future. Some say the US economy is not recovering fast enough for chairman Ben Bernanke to justify easing off his asset buying policy until next year.

However, this view has been challenged by US payroll data from Friday that said the country created a higher-than-expected 195,000 net new jobs in June.

“While not a ‘blow-out’ number, this was a very solid report which is likely to confirm investor expectations that the Fed will begin tapering this fall,” says Russ Koesterich, global chief investment strategist, BlackRock.

If markets were to begin another round of selling, it is likely exchange-traded funds (ETFs) would be widely used to express investor views.

In June, ETFs accounted for 31% of trading volume in US equity markets, compared with an average of between 20-25% in previous months, according to data from BlackRock.

The result of this trading was a net outflow of $8.2 billion from exchange-traded products during the month, says the company.

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