Back
16 May 2013
25. Forex Flash: Appetite towards fund-flows salient post 2007-crisis – Goldman Sachs
FXstreet.com (Barcelona) - Retail appetite for fixed income assets—and retail aversion towards equity—has been one of the most salient post-crisis developments. The mutual fund complex is probably the area where the retail preference for fixed income manifests itself most visibly. According to the Economics Research Team at Goldman Sachs, “The ownership shares of mutual funds and exchange-traded funds (ETFs) in the corporate and municipal bond markets and more specifically, the contrast between fixed income and equity markets is striking.”
The ownership share of mutual funds in the investment grade corporate bond market has almost doubled since 2008, going from 9% to 18% as of the end of last year, whereas the ownership share of households and mutual funds in the equity market has remained roughly flat.
Recent patterns have raised concerns among fixed income investors, and increasingly among regulators, about the risk of an abrupt reversal of fund flows and the damage this could do to the performance of the asset class. In a recent speech, Fed Governor Jeremy Stein echoed these concerns, pointing specifically to the growth of corporate bond mutual funds: “If investors in these vehicles seek to withdraw at the first sign of trouble, then this demandable equity will have the same fire-sale-generating properties as short-term debt.” The flipside of these concerns is the enthusiasm among equity investors about the prospect of increasing inflows to equity markets. “Many equity market participants view a ‘Great Rotation’ from fixed income into equity as a potential tailwind to the performance of the asset class.” the team notes.
The ownership share of mutual funds in the investment grade corporate bond market has almost doubled since 2008, going from 9% to 18% as of the end of last year, whereas the ownership share of households and mutual funds in the equity market has remained roughly flat.
Recent patterns have raised concerns among fixed income investors, and increasingly among regulators, about the risk of an abrupt reversal of fund flows and the damage this could do to the performance of the asset class. In a recent speech, Fed Governor Jeremy Stein echoed these concerns, pointing specifically to the growth of corporate bond mutual funds: “If investors in these vehicles seek to withdraw at the first sign of trouble, then this demandable equity will have the same fire-sale-generating properties as short-term debt.” The flipside of these concerns is the enthusiasm among equity investors about the prospect of increasing inflows to equity markets. “Many equity market participants view a ‘Great Rotation’ from fixed income into equity as a potential tailwind to the performance of the asset class.” the team notes.