Friday, 2 May 2014

Has sell in May and go away come early? It’s not over just yet for stocks

Bond funds back in vogue in April

Now that May Day is upon us, we can start to look back at the month of April and pick out some interesting market trends (and not just the overly-repeated “sell in May and go away”!).

One way to do this is to look simply at which types of investment funds have been popular over the last month, and which have not. Now, normally this type of data takes some time to be collated, and so there is a lag between the month end and the date that the monthly data is released.

But in the case of investment flows into and out of US-based exchange-traded funds (ETFs), we already have some indications of which asset classes and funds were popular, and which were avoided or even sold by both retail and institutional clients (the US ETF market is approximately 50%:50% split between these two types of investor).

Bond ETFs grab the lion’s share of April inflows

From looking at the ETF flow data for April (from, we can see that  both US and international bond ETFs were very popular, with American investors putting in more than $3.25bn over the month.

To quote

In the past month, more than $1.08 billion flowed into international bond ETFs—roughly twice the asset flows seen into the segment in the entire first quarter. Our data show that it was emerging market sovereign debt funds that led in net creations, attracting $671 million in April alone—the most popular fixed-income segment in the period.

So within the international bond segment, there was a big resurgence in interest in emerging market bonds, which is perhaps unsurprising given that their yields are now not far off the yields offered by US high yield corporate bond funds (which now yield only 5.4%), while you are still investing in investment-grade government debt, which in theory is a lot less risky than high-yield corporate bonds.

US Dollar-based Emerging Market Bonds were particularly popular, as exemplified by the iShares J.P. Morgan USD Emerging Markets Bond ETF (US code: EMB) which currently yields a relatively attractive 4.6%.  Figure 1 illustrates the steadily rising price of this ETF throughout most of this year to date, up some 5% from the early-February lows. 


Source: Bloomberg

There is a London-listed version of this ETF for UK and European investors, the iShares J.P. Morgan USD Emerging Market bond ETF (code: SEMB.L), priced in sterling (£65.85 as of 1 May 2014) if you feel that you want to invest in emerging market bonds and so benefit from these attractive yields, but without taking on currency risk.

Long-term US Treasury bond ETFs were also very popular last month, also taking in significant inflows as government bond yields in general declined, as they have done through much of 2014 so far.

To read the rest of this article, see the charts and why Sell in May is not always the best advice, click on the link below:

No comments:

Post a Comment