Strategic bond fund flows rise in popularity as investors are spooked by potential QE tapering

15th July 2013

Strategic bond funds have seen a surge of investors’ cash growing from 8% in the first quarter of the year to more than 14% in the second quarter according to fund platform Skandia.

The platform which does most of its business through independent financial advisers says buying behaviour within the fixed interest sector has changed dramatically with the potential tapering of quantitative easing in the US affecting investor confidence in traditional fixed income funds.

The firm says it believes investors are seeking to avoid potential losses from rising gilt yields, by shifting away from gilts and corporate bonds in favour of strategic bond funds, cash and money market funds.

“Strategic bond funds are increasing in popularity as these portfolios typically have the flexibility to navigate increasingly volatile fixed income markets,” it says.

Sales by sector

Investment Sector Q1 2013 net sales Q2 2013 net sales
Multi Asset 30.5% 23.7%
Global Specialist 15.8% 16.1%
UK Fixed Interest 8.7% 14.8%
UK Equity 14.0% 13.4%
North American 4.8% 7.0%
International fixed interest 6.9% 5.7%
Property 4.1% 5.5%
Far East 4.9% 3.3%
Cash/ Money 1.9% 3.2%
Japan 1.4% 2.9%
European 3.2% 2.6%
Emerging Markets 3.8% 1.7%

 

Within Equities, UK equities continue to dominate net equity fund flows says the firm through there has been a marked pick up in sales into North American and Japanese funds with emerging markets and China losing ground.

In terms of funds, First State Global Emerging Market Leaders still heads the net fund flow table with investors seeking to invest ahead of First State’s introduction of an initial charge on the fund later this year to protect the interests of existing investors.

Three UK fixed interest funds appeared in the top 10, two of which are strategic bonds; Fidelity strategic bond and the Jupiter strategic bond.

Top selling funds on the Skandia platform in Q2 based on net sales:

First State Global Emerging Markets Leaders
Standard Life Global Absolute Return Strategies
Cazenove UK Opportunities
Old Mutual Corporate Bond
M+G Global Dividend
Old Mutual North American Equity
Newton Asian Income
Fidelity Strategic Bond
Invesco Perpetual Distribution
Jupiter Strategic Bond

James Millard, director of investments at Skandia, says: “We are seeing a clear shift in the bond buying habits of investors. Strategic bond and global bond funds now dominate fund flows at the expense of gilt and corporate bond funds. This is largely due to Fed tapering becoming increasingly likely and bond yields rising over Q2.  Equities continued to be popular as markets rose over most of this period, with Abenomics helping to spur the demand for Japanese equities before the retracement in the Nikkei, and the relatively strong economic results for the US attracting flows.”

 

27 thoughts on “Strategic bond fund flows rise in popularity as investors are spooked by potential QE tapering”

  1. Anonymous says:

    I hear that the Brimstone is around £80k per shot. You could include development costs but they are now sunk, paid by all of us. I agree this is a very expensive way to remove a pickup with a little gun on the back. Presumably the RAF wants to stay out of range of ground fire but a few canon shells would be far cheaper were that not the case. Still, we all know that war is very, very expensive.

    1. Peter Walsh says:

      Many of the most formidable weapons have disdained thrift. Witness the Tiger Tank.

      1. therrawbuzzin says:

        Small dick, big car weapons.
        Formidable cost weapons.

        1. forbin says:

          ah the bigger dick foreign policy ……

          adviser : ” they’ve got bigger dicks than us!!”

          obama( or bush ) : ” Bomb them!! ”

          Sorry couldn’t resist …… back to the naughty step …

          Forbin

        2. Peter Walsh says:

          Small dick four inch armour.

      2. Jer says:

        Whereas the thrift-centric T34 actually won the war.

        1. Peter Walsh says:

          I know which one I’d rather have been in.

          1. Jer says:

            Rather depends which year…

          2. Peter Walsh says:

            Anytime before the end.

          3. Peter Walsh says:

            …though you’re correct, of course, on T34 efficacy. However, it’s foolish to square up on tank vs tank. I spoke with a Brit commander a few years back and asked him which was the best modern tank and he replied coolly, “the one where anything works”.

    2. forbin says:

      still its nice to know that what would have caused a drop in GDP in “sane” land will cause a rise instead…..Alice through the looking glass economics

      also glad to see we can’t cause GCP by this method to rise any further because of the “white flag” defense initative of the Liberals …..

      Remember the years before WWII , they don’t …….

      Forbin

    3. Anonymous says:

      Hi Barncactus

      The Think Defence site estimated that the cost was between £100,000 to £175,000 per missile depending on whether one put in all the development costs or not. Here are there thoughts on it in as you can imagine quite a lot of detail.

      http://www.thinkdefence.co.uk/2013/04/uk-complex-weapons-part-1-brimstone-missile/

      Still let’s look on the bright side they do seem to work…

      1. Jer says:

        Maybe we can treat blowing a few possibly hostile targets as a marketing cost?
        After all they are now “Battle proven”.

  2. Forbin says:

    I’d say as the economy is NOT rebalanced that a strong pound is desirable

    after all when it was weak manufacturing did exactly fly away did it

    there’s other factors holding back – namely that 600lb gorilla called China and its , frankly , unfair exchange rate and enviromental and labour laws

    how can you compete with that? huh ! our pollies are useless in these matters , can’t see whats in front of them except the trough

    Forbin

    1. Patrick, London says:

      “Can’t see whats in front of them except the trough.”

      :) Nice.

  3. GusBmth says:

    Hi Shaun

    The message coming from the BoE seems to have shifted from ‘rate rise coming soon’ to ‘no rise on the horizon’. The request for powers to place limits on mortgage lenders is a clear indication that if house price increases don’t moderate the Bank want to use that mechanism first, rather than interest rates. Incidentally, Carney made comments over the summer that he would be ‘relaxed’ if house prices increased by 20% over 3 years; that equates to 6.25% p.a. Thanks for the target!

    Forbes seems to have added another ‘target’ in her analysis: Sterling depreciation of up to 5% is OK, more than 5% is inflationary, adding a lot pressure for a rate rise.

    Finally, I’m worried that the analysis refers to domestic wage growth rather than unit labour costs as being important to domestic inflation pressures. Is that a Freudian slip revealing the Bank”s true view about productivity growth in the UK economy?

    1. Anonymous says:

      Hi Gus

      You are right to point out that a Base Rate rise has just reversed back over the horizon. It is clear that Kristin Forbes if she follows her own logic sees no need and the FPC move will give an excuse for delay further.

      As to a Freudian slip I am not so sure as this point is made.

      “Four of these measures – the GDP deflator, GVA deflator, ULC and UWC series – are not reported until 3 months after the quarter ends. For these three measures, if there was a spike in the data at the beginning of the quarter, it would not be
      reflected in available data until 6 months afterward! As a result, although these indicators are useful to understand the past, they only have limited value in assessing prospective trends and risks.”

      Actually let me add an issue with the GDP deflator which is that it has become erratic and unreliable in the credit crunch era. So much so that I do not see it as much of a useful tool anymore. It is a shame as it used to be useful but one has to go with the evidence.

      1. GusBmth says:

        Hi Shaun

        Thanks for such a detailed reply. It prompted me to reread the Bank’s paper on the productivity puzzle. The Bank’s ‘judgement’ about productivity is that it recovers gradually through the recovery, reaching the trend rate of growth by around 2016.

        What is frightening about the report is the comparison of productivity after recessions and how exceptionally bad the past 6 years have been; at best 6 lost years.

        Although the numbers may be released with a long time lag, let’s hope productivity does show signs of growth, because without that the future looks pretty bleak.

        http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q201.pdf

  4. David Lilley says:

    Shaun,
    If I may come in on the cost of hitting the IS.
    The cost of flying a Tornado for one hour’s flight is £39,000 (£61,000 for a Typhoon). A 7.5 hour round trip is 7.5 times £39,000 plus the cost of the refueling tanker. The pickup was stolen. You see the aircraft and you jump from the pickup and go steal another. Who is the winner? We win if we prevent a massacre
    You have to understand your enemy

  5. David Lilley says:

    We don’t understand the enemy and everything we say about them is so incorrect that it is powder to their guns. We say that we are Judeo-Christian when few of us have read the bible and none have learnt it off by heart. We say that Islam is peaceful and has just as much right to exist as Christianity. When has either been peaceful? When will magic and irrationalism trump reason?

    1. Anonymous says:

      Correct, but a knee jerk reaction with a few very expensive weapons resolves nothing.

      Overrunning countries and imposing a democratic regime may have worked in Japan & Western Germany, circa 1945, but it looks like a dismal failure in Iraq & Afganistan.

      It looks dissimilar to the cold war where containment with contest of moral and economic superiority brought down the USSR ($10 per barrel helped too)

      What is the strategy to outlast and defeat ISIS ?

      1. David Lilley says:

        Expatin,
        I would love to be the one to provide the driver that removes the IS. I’m afraid that I ran out or steam 12 days ago. It was way past my bedtime.
        Our airstrikes are almost negative. If it is costing us some £2m to hit a pickup that was stolen and can easily be replaced by another theft. Who is the winner?
        Remember when Al Qaeda shorted US stocks prior to 9/11 to make money from their insider knowledge. But bigger than the £2m is the risk adjusted cost. Every time you fly a mission you risk loosing a plane and risking a step change in our costs when our pilots are beheaded.
        The IS only use the two biggest hooks ever invented to hook the best of us. Yes, the best of us. The profile of the Western suicide bomber is rich, middle-class upbringing and excellent qualifications in science, engineering or medicine. The two biggest hooks are 1. the Abramic hook, “kill me a son” and 2. blasthemy/apostacy.
        In the West we have gone foreword standing on the shoulders of giants such as Socraties, Plato, Aristotle, Locke, Mill, Hume, Kant and Popper. Animism, polytheism and monotheism have been junked by respect for the best argument. The hooks and the hooked are far less present in the West but remain omnipresent in the Islamic world and hence their imperative of keeping the West as distant as possible from the threat to church income. It is the church that sells the hooks. The IS are only the hooked. They have nothing to offer. They are the suckers.
        They cannot resist much longer and the IS is a final rear-guard defense of theocracy that has only given them super rich dictators, poverty, misery, blood, hatred, suicide bombs and zero contribution to the health and wellbeing of the planet and its occuppants. Learn the Koran off by heart but you will never be up there and get a Nobel prize.
        The West by comparison is full of health, wealth and happiness. And Muslims who have escaped the missery though not the hooks. The hooks are barbed. It is difficult to remove them but we managed to remove ours.

  6. David Lilley says:

    I have to bang on about our response to IS because our only response has to be argument

  7. Fraser Bailey says:

    Yes, the cost of a missile relative to a pick-up truck occurred to me when I heard this. Madness, the whole lot of it. Like everything they do.

  8. JW says:

    Indeed, no such thing as ‘solid matter’, its all states of energy, and the closer you look ,the less you can be sure about. Seems to sum up ‘economics’.

  9. Anonymous says:

    Hi Guys

    Economics could do with its version of the Heisenberg Uncertainty Principle. Except its version would often know neither where we are nor how fast we are travelling!

  10. Paul C says:

    Hi Shaun, I liked your term Carney Crony for KF. Every leader needs disciples to endorse their view. Suprised how your blog veered military, I worked in defence and those missiles were really expensive in 1986 but like fireworks they need to be used or they end date so it is pointless to try and price them.

    Just come back from SW france and its same as ever there.

    Paul

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