Bond funds just recorded their highest monthly inflows in the last five years, as investors flocked to the safe havens in anticipation of the market crash in August.
European investors poured €48.4bn (£41.3bn) into fixed income funds during July, bringing their total inflows to €188.7bn (£160.8bn) since the start of 2024, data from Morningstar revealed.
“This surge reflects a strong appetite for fixed-income strategies amidst varied global equity market performances,” explained Antje Schiffler, editor at Morningstar.
“Notably, active fixed income strategies attracted €32.7bn, driven by a robust interest in Asian local currency bonds,” she added.
While equity funds did attract €10.1bn of inflows from European investors, this was entirely attributable to passive funds, which gained €12.5bn over the month.
The retreat into bond funds came in the buildup to the ‘Black Monday’ event at the start of August, which saw global markets drop suddenly over fears of a US recession.
However, worries had been building towards the end of July following a string of poor results from large American tech companies, with Nvidia, a proxy for US megatech, dropping over 12 per cent in July.
“Investors withdrew €3.3bn from Japanese large-cap equities, making it the category with the largest outflows in July, while global large-cap blend equity once more was the category that saw the largest net inflows,” noted Schiffler.
Similar to US tech giant stocks, the Japanese Nikkei fell seven per cent in the last three weeks of July, before crashing 20 per cent in the first few days of August.
The beginning of this underperformance was caused by the unwinding of the yen carry trade that led to the sharp market selloff in just days later.
Looking across other sectors, allocation strategies suffered their 14th month of negative flows, losing €2.9bn, while money market funds brought in a whopping €32.6bn.
Meanwhile in the sustainable world, Article 8 funds, often called ‘light green’ funds, had their best month since January 2023, bringing in over €20bn of cash in the month.
However, Article 8 funds, or ‘dark green’ strategies, bled €797m in their 10th consecutive month of outflows.