Investors in Europe and the UK have started to pull their money out of fixed income funds at historically high rates, according to Morningstar.
The asset class suffered an outflow of €16.3bn (£11.6bn) in September as geopolitical events such as tumbles in China and uncertainty over interest rate policy in the US, UK and Europe, seemed to conspire against fixed income.
With August’s outflows reaching €17.6bn (£12.6bn), analysts from Morningstar said European fixed income funds were facing their largest quarterly outflows since the financial crisis of 2008.
Matias Mottola, manager research analyst for Morningstar, said rising credit spreads have hurt corporate bonds, while worries of a slowdown in China weakened emerging-market bonds.
Mr Mottola said: “The worst hit during the quarter were emerging-markets bond funds of all types, with funds focused on renminbi bonds seeing the highest outflows in relation to their size.
“Developed markets fixed-income funds, with exposure to corporate bonds, also experienced sharp outflows as credit spreads rose globally.”
Adviser view
Ben Willis, head of research for Bristol-based Whitechurch, said: “The emergency interest rate environment has forced investors into higher-risk assets over the years, and this has clearly inflated prices, particularly yielding assets.
“With the prospect of interest rate rises ahead, some of the yielding risk assets will come under pressure and fund managers are right to look at ways of mitigating this risk. This is a step that we ourselves have taken over the year within our own discretionary portfolios.”
