Global investors headed for the safety of cash in May, as uncertainty over US interest rate hikes and the outcome of the UK’s referendum on June 23 weighed on sentiment. Money market funds attracted $3.1 billion of inflows compared with $573 million of outflows in April, according to data from Morningstar Direct. The lion’s share of inflows headed into State Street Global Advisors’ US dollar money market fund. In contrast, the SSgA GBP Liquidity fund saw outflows. Money market instruments offer better interest rates than traditional bank deposits and a bet on a currency’s strength.

Overall, equity funds suffered their fifth straight month of outflows, although the pace eased in May. A total of $2.9 billion was redeemed from the 621 open-ended equity funds available for sale in Singapore — 28% less than the previous month. The 69 European equity funds, which typically invest in the UK, were among the biggest losers, with net withdrawals totalling $1.5 billion. BlackRock’s $7.2 billion BGF European fund, which has 41% invested in the UK, was the worst hit, with outflows of $420 million.

An exception was the $1.2 billion Parvest Sustainable Equity High Dividend Europe fund. It was the second- best selling equity fund, with positive sales of $323 million. The fund invests in high-dividend-paying European companies — a strategy that appeals to yield-starved investors.

Investors also shied away from China and Hong Kong-focused equity funds, which suffered outflows totalling $872 million. Worse affected were the $4.9 billion Fidelity China Focus fund and the $3.6 billion Schroder ISF Hong Kong Equity fund. Both are down 24.2% and 17.3% respectively over the past year. China, the world’s second-largest economy, faces slowing growth and rising non-performing loans. This also impacted funds in the Asia ex-Japan Equity category in which outflows amounted to $331 million. Several funds invest more than a third of assets in China and Hong Kong. They include the Eastspring Inv Asian Equity fund, which recorded the largest outflows of $413 million. Combined with returns of -20% y-o-y, total assets more than halved to $409 million over one year.

Interestingly, Asia-Pacific ex-Japan Equity funds enjoyed net inflows totalling $483 million. The category’s relevant MSCI benchmark not only allocates a smaller weight of 32% to China and Hong Kong, but also has a broader geographical mandate that includes Australia. The $853 million Eastspring Inv Asian Equity Income fund drew the largest inflows of $431 million. The fund’s second-biggest holding is Westpac (3.6%), Australia’s second-largest bank.

In the fixed income space, the “riskoff” mood in May saw investors switch from risky, high-yield bonds to safer investment-grade corporate debt. This came as spreads between government debt and junk-rated bonds narrowed. Risky assets have recovered strongly after the year’s turbulent start and the rebound in oil prices. High-grade corporate bond funds that attracted capital include the PIMCO GIS Glbl Investment Grade Credit fund, the JPMorgan Global Corporate Bond fund and the AB FCP I Global Bond Portfolio fund. Meanwhile, outflows hit the AXA World Funds US High Yield Bonds fund, the Fidelity European High Yield fund and the Fidelity US High Yield fund.

Given volatile markets, there was continued appetite for lower-risk allocation and alternative asset funds that promise positive, absolute returns. The JPMorgan Global Macro Opportunities fund attracted $638 million — its 12th consecutive month of inflows. The fund is up 5.8% over the past year. Another allocation fund — First Eagle Amundi International — attracted $230 million. Nearly a third of the First Eagle fund’s assets are invested in cash and gold-related securities. Gold, a safe haven asset, has performed well this year. Meanwhile, the Aviva Investors – Multi- Strategy Target Return alternative fund attracted $243 million and is up 1% over the past year.

This article appeared in the Personal Wealth of Issue 734 (June 27) of The Edge Singapore.