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Money Continues To Pour Into Funds In 2014
In the Spotlight | 08 April 2015
By: Tan Jia Hui
Articles (82) Profile

Recently, the Morningstar Singapore Funds Awards was held in recognition of the stellar performance of various retail funds and fund houses. During the awards ceremony, Shares Investment was also given an insight of fund movements in 2014.

The past year had been another strong year for fund flows. After adding an estimated US$967 billion in 2013, funds worldwide witnessed a net inflow of more than US$1.3 trillion in 2014.

A Comeback For Bond Funds; Indexing A New Trend?
Once again, equity funds proved to be the favourite amongst investor, with the largest net inflow of US$439 billion.

Despite the low interest rate and yield environment in 2014, fixed income funds saw the biggest surge in inflows from US$127 billion in 2013 to US$371 billion in 2014 as investors value its lower volatility, placing it in second place.

On the other hand, commodity funds had another rough year, being the only category identified with a net outflow, at US$5 billion. This comes on the backdrop of falling commodities prices, most notably, the sharp fall in crude oil prices since 2H14.

Source: Morningstar

Indexing (replicates the performance of a given index of stocks or some other investment type) continues to be on the rise, though predominantly led by the US market and particularly in equity funds. In the past two years, equity index funds gathered the largest cumulative inflows.

Popularity of indexing in the US might stem from the more developed market for index funds and exchange-traded funds in the nation, which provides a wider selection.

While this passive investing strategy is gaining traction, majority of assets are still held in non-index funds. Hence, it still remains to be seen if investors will shift their preference, particularly outside of the US.

Different Regions, Different Preferences
Given the differences in cultural and macroeconomic conditions, it would not come as a surprise that investors in different regions vary in their money allocation.

In the US, the strong stock market gave equity funds a good run, being the category group with the largest inflow in the nation. Within equity, there was a shift from large-growth US equity to large-blend US equity, indicating a change from a higher-risk, higher-return approach with growth stocks to a more balanced approach with blend stocks (mix of growth and value).

For Asia, while fund flow dwarf in comparison to the US, Europe and cross-border regions, money market funds seem to be a favourite.

Overall though, allocation funds (mixed portfolio of three main assets – stocks, bonds and cash equivalents) seem to be most well received when all regions are taken into consideration. Due to the built-diversification across asset classes, allocations funds are less volatile against market fluctuations.

Going forward, a mix of an eminent interest rate hike (or not?), slow growth in China, cloudy outlook in Europe and diverging views on oil prices will affect where investors decide to put their money in 2015. As yields become harder to chase in today’s environment, where will you put your money?

Armed with a bachelor in mathematics, Jia Hui keeps close tabs on the oil & gas, and manufacturing sectors in Singapore.

Please click here for more information about this author.

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