February saw a global sell-off in high yield fixed income funds across the world. All three of the largest high yield sectors featured among the peer groups experiencing the highest net outflows.
With US inflation fears gathering pace, the bond market is being severely tested for the first time since 2013’s infamous taper tantrum. The yield on the US 10-year has been traveling higher since the middle of December and that movement is forcing allocators to reconsider their fixed income exposure.
While high yield has clearly borne the brunt of this, it was not a universal sell-off. Local currency emerging market debt took in an impressive $3.4 billion in February as it continued to scoop up assets from yield-hungry investors.
Hot & Cold: Sector Flows (Feb. 2018)
|+||Bonds – Emerging Markets Global Local Currency||$3.43bn|
|+||Bonds – Global||$3.11bn|
|+||Equity – Global Emerging Markets||$1.51bn|
|+||Equity – Europe||$1.28bn|
|+||Bonds – Euro Short Term||$1.27bn|
|-||Bonds – Euro High Yield||-$1.2bn|
|-||Bonds – Europe High Yield||-$1.34bn|
|-||Bonds – Global High Yield||-$1.82bn|
|-||Bonds – Euro Corporates||-$2.95bn|
|-||Bonds – US Dollar High Yield||-$2.96bn|
One portfolio took the lion’s share of these flows: the BGF Emerging Markets Local Currency bond fund, run by the Citywire + rated trio of Sergio Trigo Paz, Michal Wozniak and Laurent Develay. The team took in an impressive total of $2.8 billion over the month.
Despite the pull-back in Global Emerging Markets equity, the sector still experienced positive inflows of $1.5 billion, while European equity took in new money. Amundi’s European Equity Value fund was the big winner, with flows of $1 billion.
This article was originally published in the April 2018 magazine edition of Citywire Americas.