Record-breaking inflows into equity funds
Investors are pouring into global equity funds with unprecedented enthusiasm.
According to data from the data provider EPFR, by the first half of 2021, the industry has increased by approximately US$580 billion, making this category expected to hit a record high.
Strategists at Bank of America estimate that if the rate of inflows remains the same for the rest of this year, equity funds will absorb more funds in 2021 than the sum of the past 20 years.
Equity funds injected these funds into the rising stock market, and as the economy gained momentum from the pandemic, major stock indexes climbed to a series of record highs in the past week. The S&P 500 index has risen by more than 15% this year, while the FTSE Global Index has risen by more than 12%.
The fact that relatively low bond yields – and more than $12 trillion in bonds traded at yields below zero – magnifies the appeal of the $117 trillion global stock market.
Diane Jaffee, a portfolio manager at the asset management company TCW, said: “The economy has undergone a real earth-shaking change. Where does the source of profit growth come from.” “Even if the most conservative estimate of inflation is made, The actual return on your bonds is also negative.”
Fund inflows are broad-based, with large inflows from global funds and funds that buy US, Japanese or European stocks.In recent weeks, investors have also shown a preference for U.S. growth stocks and technology stocks as they debate how long inflation will remain high and whether the so-called reinflation trade will Keep shaking.
EPFR data shows that, in contrast, the increase in sovereign bond fund holdings this year is relatively small, at 33 billion U.S. dollars.
Jaffee said that she expects investors to continue to be bullish on stocks this year, especially those US stocks that have launched the Covid-19 vaccine in the US at a faster rate than most developed markets. But she and others warned that shocks in bond yields — such as the U.S. central bank’s policy mistakes — remain the biggest risk.
DataTrek co-founder Nicholas Colas (Nicholas Colas) said: “Although we are unlikely to tighten too much now, the problem of poor policy communication is very important.”
Colas pointed out that even after the panic was reduced in 2013, the US stock market performed well, when the Fed chairman stated that the central bank would reduce its bond purchase program at some point, which would trigger market volatility.
But Colas added: “Although the reduced panic period in 2013 is good for stocks, we cannot completely rule out the possibility that this time may be different.”