Outflows from open-ended equity funds sold in Singapore accelerated to $4.1 billion in April against $2 billion in March. Global investors pulled money from US, Europe and Japan equity funds last month to switch to a wide array of bonds, gold and oversold emerging markets, according to fund flow estimates from Morning star Direct.

US and Europe large-cap funds bore the brunt of equity redemptions as first-quarter earnings from financials, technology, healthcare and energy sectors triggered disappointment. Between $300 million and $360 million each was sold out of BlackRock Global Funds — European, Legg Mason ClearBridge US Aggressive Growth and UBS (Lux) Equity SICAV — USA Growth (USD).

In Japan, renewed scepticism over reflationary policies and the yen’s strength pressured the Nikkei down 0.6%. This prompted net withdrawals of $291 million from the 32 Japan- focused equity funds. Pedalling against the headwinds was the JPMorgan Japan Equity fund, which drew inflows in both March and April. Returning 3% against the previous month and 9% over the year, the fund’s assets grew to $3 billion.

China equity funds also posted higher outflows of $423 million in April against $261 million in March. Worst hit was US mutual fund giant Fidelity’s $5.1 billion China Focus fund, which experienced $123 million of outflows. Other emerging markets enjoyed a more benign environment although the rebound from February’s lows showed signs of levelling out. The MSCI Emerging Index rose 0.9% in April, supported by oil’s recovery and more sanguine views of the US rate hike cycle. This benefitted the $5.5 billion Fidelity Funds — Emerging Markets fund and the $2.9 billion BlackRock Global Funds — Asian Dragon fund. They drew nearly $400 million and $275 million respectively.

The dollar’s weakness and negative central bank rates in Japan and Europe continued to buoy gold funds. The BlackRock Global Funds — World Gold fund attracted $800 million for the quarter to April. Coupled with returns of 20% over the month, the fund’s assets have expanded to $6 billion, up nearly 50% y-o-y.

Rally in emerging market debt
Shying away from equities, investors poured $4.7 billion into fixed income funds, extending the trend from March. Nearly three fifths of the 270 bond funds available for sale in Singapore registered inflows. The most popular were Aviva Investors’ $3.2 billion Emerging Markets Local Currency Bond and the $5.5 billion Global High Yield Bond funds. They attracted close to $900 million and $670 million respectively. Higher yields and firmer currencies improved sentiment towards emerging market and junk bonds which were out of favour early in the year.

However, Franklin Templeton’s two flagship bond funds suffered heavy redemptions. The $31.7 billion Templeton Global Bond and $30.2 billion Templeton Global Total Return funds each saw outflows of more than $560 million. This marked their 16th consecutive month of outflows. Worldwide, active bond funds such as those managed by Franklin Templeton have been losing out to cheaper, passive bond rivals. This is largely owing to active bond funds charging elevated fees while turning in below-average returns.

Allocation funds, which invest in a combination of stocks and bonds, drew less money in April — $303 million compared with inflows of $1.9 billion in March. The USD Moderate Allocation sector was especially affected by the weakness in the greenback, which fell a weighted 1.6% against six major currencies in April.

A combined $1 billion was redeemed from PIMCO GIS plc Global Multi-Asset, UBS (Lux) Key Selection SICAV European Growth and Income (EUR) and BlackRock Global Funds — Global Allocation. The outflows came despite small, positive gains for the month for these funds. Rated Gold by Morningstar, the $28.6 billion BlackRock Global Allocation Fund reported in its April monthly update that the fund’s allocation to gold and precious metals was raised since end-2015 to offset an o verweight exposure to the US dollar.

Promises of absolute returns prove popular
Despite dropping 1% for the month, the most popular allocation fund in April was JP Morgan Global Macro Opportunities in the EUR Mode rate Allocation — Global category. Following a mammoth $1.6 billion raised in March, nearly a billion more came in during April. Total assets for the fund stand at just under $7 billion, up 33fold in a year. JP Morgan Asset Management’s new offering joins a growing number of retail funds offering hedge fundlike absolute returns. In a recent interview with Personal Wealth, Talib Sheikh, part of the team that runs JPMorgan Global Macro, said, “At the end of the day, we are trying to deliver cash plus 7% each year through varying market conditions.”

For yield-starved investors who have grown weary of short-lived uptrends and volatile markets, the allure of more flexible, unconstrained strategies promising positive returns carried over into alternative funds. The 18 funds in this asset class collectively posted higher inflows of $360 million in April, compared with $106 million in March. Although there are fewer funds offered compared with major asset classes, total assets have grown from $16.3 billion to $19.7 billion in a year.

Alternative funds employ strategies that include taking short positions, mispricing in securities or using derivative instruments to generate returns. Launched in September last year, total assets of the Aviva Investors — Multi-Strategy Target Income fund have grown to $588 million. Of this, $307 million was gathered in April alone. Like JPMorgan Global Macro, the fund targets an absolute return.

According to Aviva Investors — Multi-Strategy’s product highlight sheet, “The Fund aims to achieve an annualised 4% income yield above the European Central Bank base rate (or equivalent), regardless of market conditions (absolute return) and to preserve capital over three-year rolling periods. However, no guarantee can be provided in that regard.”

This article appeared in the Personal Wealth of Issue 730 (May 30) of The Edge Singapore.