Capital Markets

Fund Managers Now More Prone to Risk

Institutional investors seem to have zigzagged back into riskier assets.
Ed ZwirnAugust 31, 2004

The latest word from the Street is that investment-fund money is “generally leaving safer assets and flowing into riskier investments,” observed Merrill Lynch high-yield analyst Oleg Melentyev, in his weekly “Know the Flow” report.

Citing a report from AMG Data Services, Melentyev, observed that $14 billion left money market funds in the week ended Aug. 25, extending “the zigzag flow pattern this group is experiencing to 13 consecutive weeks.” This figure represents 0.75 percent of assets under management of money market funds.

The prior week—the one ending August 18—saw a net inflow of $7.4 billion into money-market funds, according to AMG So far this year, investors have withdrawn $111.6 billion from this group of funds.

Municipal debt funds added week 22 to the count of their consecutive weekly outflows. So far this year, the negative attitude toward munis cost them $9.8 billion in cash withdrawals (2.9 percent of assets).

If safe havens became less popular for investments during the period, gains were seen in just about every category of investment containing more risk than money markets and munis. “High-yield bond mutual funds broke the string of four consecutive (although relatively insignificant) outflows with a $264.0 million,” Melentyev reports. The inflow represented a 0.31 percent addition to their assets and brought the year-to-date total to a negative $7.8 billion (5.7 percent).

“It will be interesting to see what the next week’s number brings us,” said Melentyev. Notably, according to the analyst, the two largest weekly inflows on record for high yield occurred in the pre-Labor Day weeks of 2002, when the flow into high yield was $1.6 billion, and 2003, which saw a $3.3 billion inflow.

Institutional investors continued to move money into emerging market debt funds. That group posted a $20.5 million intake (0.96 percent). In equity land, investors continued to put more cash into dividend-rich Equity Income funds, as well as global and international funds, resulting “in a relatively small $555.3 million positive net for the broad category, 0.03 percent of its assets,” according to the columnist. Money also flowed into energy funds, despite a 10.6 percent drop in crude prices over the prior five trading sessions.

Bond funds registered a $749.3 million inflow during the period, helped by relatively strong results in mortgage, treasury, and high-yield funds, according to Melentyev.

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