Investor exodus from defensive multi asset funds 09 May 2016

Investor exodus from defensive multi asset funds

By Tjibbe Hoekstra

Multi asset funds lost money for the second consecutive month in February, for the first time since March 2009. Funds that invest mainly in bonds have been bleeding most of late, while medium-risk funds actually saw net inflows.

According to Morningstar fund flows data, so-called cautious allocation funds saw net outflows of €3.6bn (£2.9bn, $4.1bn) in the first two months of the year. This marks a sharp change in fortunes for the fund category: in the 18 months to June 2015, defensive multi asset funds saw some €40.7bn in net inflows.

Apparently, investors have realised the ultra-low yields have rendered the long-term return prospects for these funds so poor that they need to increase the risk they take. Over the past three years, the fund category has only generated a measly total return of 1.66%, comparable to interest income from a savings account. Moreover, since April 2015, so-called cautious allocation funds have lost 7.55%.

Though investors in medium-risk multi asset funds also lost a lot of money in the past year, total returns since 2013 have been about three times as high. Consequently, investors have been shifting their assets to these higher risk alternatives: in February alone, moderate allocation funds saw net inflows of €2bn.