Record 2-week Sell-off for High Yield and Emerging Market Bond Funds
By Hal M. Bundrick
NEW YORK (MainStreet)--The repositioning of assets is reaching a fever pitch, especially in fixed-income funds according to analysis by Lipper, the mutual fund research firm. Mutual funds and exchange-traded funds (ETFs), excluding money market funds, saw a combined $20.6 billion in net outflows during the past two weeks.
"The overwhelming victim of this shift was the fixed income space; taxable bond outflows made up over 70% of the net redemptions," says Matthew Lemieux, a senior research analyst for Lipper. "Overall, this was an unsurprising move as ten-year U.S. Treasury yields spiked well above 2% for the first time since the spring of 2012 and investors tried to wrap their heads around the first significant losses to their bond portfolios in some time."
Lipper attributes the rapid reallocation by investors to increased volatility and uncertainty in global markets, as well as the anticipated tapering of quantitative easing by the Federal Reserve.
The research firm reports that high-yield funds saw net redemptions of roughly $7.9 billion just over the past two weeks. Emerging market bond funds were also trimmed by investors as the asset experienced over a billion dollars in net outflows during the same period.
"It was the largest two-week sell-off on record for both groups as bond investors sacrificed yield for "safety" in preparation for the highly anticipated rising-rate environment that may be close at hand," says Lemieux. "This perceived 'safety' was found in short duration/maturity products like the floating-rate based Loan Participation Funds as well as Short Investment-Grade Debt, Short U.S. Treasury, Short U.S. Government, and Ultra-Short Obligation offerings."
Investors are favoring stock mutual funds as they reallocate assets. All equity funds reported net inflows of $1.479 billion for the week ending June 19th, according to Lipper. That continues a trend of a rotation to stocks that has spanned 23 consecutive weeks.
--Written by Hal M. Bundrick