Investors Flock to US Securities, Shunning Eurozone and BRICS in 2011

(January 5, 2012) — Bonds in the United States took ‘safe haven’ status in 2011 as institutional investors fled from the Eurozone and emerging markets fearing worsening conditions, fund flow data today has shown.

Investments in US debt were the most favoured of any sector in 2011, according to data monitor EPFR. In the last 12 months, over $63 billion flowed into these funds; however, this was only just over a third of the $171 billion taken in 2010.

In comparison, annual outflows from European bond funds broke the previous record set in 2008, with over $20 billion in assets being pulled by owners. In 2010, investors had placed just over $3 billion into these funds.

Concerns over defaults in the region had led to record high yields on some Eurozone sovereign bonds in 2011. Investors on the continent and around the world fled from issuance in these nations and their neighbours.

Unlike the nation’s debt securities, US equity funds saw outflows until the last couple of months of the year. After starting 2011 with their best quarter since the third quarter of 2008, these funds stumbled badly in mid-year on their way to a new outflow record, according to Brad Durham Global Managing Director at EPFR.

Durham said these funds posted inflows in eight of the final ten weeks of the year, despite a continued absence of retail investors.

He said: “Institutional investors actually committed over $50 billion to the US funds we track.” 

Western European equity funds also suffered a fall in confidence due to the ongoing economic crisis in the region, according to EPFR.  Almost $16 billion left these funds, although this number was lower than the $23 billion that was pulled from them in 2010.

Only Germany – the continent’s largest economy and perceived leader of Europe – saw inflows: over $18 billion compared with $6 billion in 2010.

Emerging market funds also were hit by major outflows last year. Indian and Chinese equity funds were the worst of the BRIC nations to be hit with around $4 billion being withdrawn from each. In 2010, each had seen multi-billion dollar inflows.

Brazil also saw over $2 billion in outflows from its equity funds with Russia only losing $422 million over the year – each had seen inflows a year earlier.

Money market funds saw a fifth of the $500 billion outflows in 2010, but return-seeking investors still preferred higher risk investments in 2011.