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Sovereign investors' dislike for equities mostly fades in second quarter

EconomyAug 28, 2019 06:31PM ET
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© Reuters. A trader looks at screens as he works on the floor at the New York Stock Exchange (NYSE) in New York

By Tom Arnold

LONDON (Reuters) - Sovereign wealth funds' distaste for equities mostly faded in the second quarter, with some investors turning to emerging- market passive equity funds, data from the research firm eVestment showed on Thursday.

Passively managed equity funds outside the United States took in $1.77 billion from sovereign investors during the quarter, after allocations shrank in the previous three quarters. Outflows from all global equity funds dwindled to $652.7 million, much less than in recent quarters.

"Negative sentiment in aggregate by sovereign wealth funds toward global equity exposure mostly disappeared in (the) second-quarter, replaced in part by clear demand for passive emerging market equity exposure," said Peter Laurelli, global head of research at eVestment, which collates data from firms managing money on behalf of institutional investors.

Global stocks, as measured by MSCI All Country World Index, rose 1.8% in the second quarter. The MSCI Emerging Markets Index slipped 1.4%. Worries about the U.S. China trade war and the risk of a global recession have buffeted both markets since.

Slowing redemptions in passive European, Australian, Far Eastern and global equity funds and active large-cap Japan and all cap Asia ex-Japan equity funds were one reason for the greater interest in non-U.S. equity exposure, Laurelli said.

Emerging-market passive equity funds brought in $1.92 billion during the quarter, taking their allocations to nearly $7 billion since the beginning of 2018.

"At the same time, there have been net outflows from active global emerging-market equity strategies, which implies that sovereign wealth funds want emerging-markets equity exposure, but they are less interested in getting this exposure through traditional actively managed products," said Laurelli.

Within fixed income, outflows continued during the quarter from U.S. fixed income funds, but global fixed income saw inflows of $841.5 million, down slightly from the previous period.

Sovereign wealth funds shifted into global government fixed income, putting in $1.86 billion during the quarter, a turnaround from outflows in the three previous quarters.

In a bid to seek cover from the risk of a global downturn, investors have been snapping up bonds, sending negative yields cascading across the euro zone.

Sovereign investors' dislike for equities mostly fades in second quarter
 

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