April’s market storm saw UK investors flee bond funds at the fastest rate since the onset of Coronavirus, according to Calastone’s Fund Flow Index.
In the worst month of fixed income outflows since April 2020, investors pulled a net £1.24bn from bond funds in the month amid spiking Treasury yields and global market volatility.
A net £589m flowed into the ‘safe haven’ of money markets, the asset class’s fifth best month on Calastone’s record.
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“Bond markets have whipsawed as investors try to price the impact on the global economy of ever-changing US policy announcements on trade as well as threats, both made and rowed back on, to undermine the independence of the US Federal Reserve,” Edward Glyn, head of global markets at Calastone said.
“The US dollar is also under pressure, harming confidence in US government bonds, which form by far the largest share of the global sovereign bond market. The turmoil in US bond markets has in turn pressured yields around the world.
“With most tariffs currently on hold and the Fed’s independence seemingly secure, markets rallied in the second half of April – bond yields were significantly lower (pushing up prices) at the end of the month than in the week following ‘Liberation Day’.”
Despite the tariff turmoil sending equity markets crashing, investors added £1.52bn to equity funds in the month with a net £1.51bn piling into North American equity funds.
Calastone data noted the net buying began on 8 April, just as the market began to speculate that President Trump was about to reverse his Liberation Day tariff schedule announced six days earlier. Global funds also saw strong inflows, totalling a net £1.48bn.
However, emerging markets suffered their worst ever month for flows, with emerging market and Asia-Pacific equity funds recording outflows of £591m and £534m respectively.
European equity funds also saw net redemptions of £145m, while the net selling UK-focused equity funds reduced to £521m.
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“Bond and equity markets rallied more or less in tandem in the second half of April so it seems strange that investors in fixed income funds took such a different view from those in equities,” Glyn added.
“There are clearly concerns about government finances if the global economy slows as much as many are now predicting and this may be a factor. Equally the bond market seems to be the one force that has so far been able to constrain the wildest instincts of the US president and the associated volatility that entails.
“This may be why investors are pulling out of bond funds and parking so much cash in safe-haven money market funds.
“The interest in US equities in April may simply be a ‘buy the dip’ tactic. Certainly inflows tailed off at the end of the month by which time the US stockmarket had recovered half the peak-to-trough losses it had suffered between the middle of February and early April.”
This story was written by our sister title, Portfolio Adviser
