Bond funds worldwide attract $7.1 billion, 7th straight week of inflows: BofA

[February 21, 2015]  By Sam Forgione
 
 NEW YORK (Reuters) - Investors worldwide poured $7.1 billion into bond funds in the week ended Feb. 18, with riskier high-yield bond funds attracting fresh inflows on signs global growth is improving, data from a Bank of America Merrill Lynch Global Research report showed on Friday.

High-yield bond funds attracted $2.1 billion, marking their fourth straight week of inflows, according to the report, which also cited data from fund-tracker EPFR Global. Inflows of $6.4 billion into stock funds marked their second straight week of robust new demand and underscored investors' solid risk appetite.

Exchange-traded funds, which are thought to represent the institutional investor, accounted for $5.8 billion of the stock fund inflows.

While the inflows into high-yield bond funds were half the previous week's, which were the biggest since July 2013, they still showed investors' conviction that the bonds have more room to gain on the heels of a 1 percent drop in the Barclays U.S. Corporate High Yield index in the fourth quarter of 2014.
 

The index has since rallied 2.2 percent so far this year.

"The underperformance in the fourth quarter has created an opportunity and, given a broadly positive global outlook, we would expect those bonds to do better," said John Bellows, portfolio manager at Western Asset Management Co. which oversees roughly $466 billion in assets.

"An improving growth outlook, both in the United States and in Europe, combined with global accommodative monetary policy, that's a pretty favorable environment for risk assets," he added.

Bellows said both lower-rated, high-yield bonds and investment-grade corporate bonds should gain in price. The latter group attracted $5 billion in new cash, their 61st straight week of inflows.

A strong U.S. employment report for January released earlier this month and improving economic data out of Europe have cheered investors. On Friday, surveys showed the euro zone's private sector in February expanded at the fastest pace in seven months.

Funds that hold European shares attracted the bulk of the new cash into equity funds in the latest week with $5.8 billion in inflows, marking their sixth straight week of new demand.

Funds that hold U.S. stocks posted outflows of $1.2 billion, meanwhile, marking withdrawals in six of the past seven weeks, despite the benchmark S&P 500 stock index gaining 1.5 percent over the latest weekly period.

Outflows of $11.2 billion from low-risk money market funds showed investors putting cash to work in riskier funds.

(Reporting by Sam Forgione; editing by Jennifer Ablan and G Crosse)

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