Who wants to buy risky stocks when you can buy bonds backed by American mortgages? Well at, least that’s the logic fund flows are following these days:
Of the 10 major US Equity Fund sub-groups, only Small Cap Value, Large Cap Growth and US Balanced Funds managed to post inflows during the third week of July.
Despite the dovish outlook for interest rates US Bond Funds continued to attract plenty of money. Once again those specializing in short-term and municipal debt did well, and there was a significant spike in flows into US Mortgage Backed Bond Funds which have been doing well since mid-May.
This looks like investors increasingly chasing after yield, given this new spike in interest for these mortgage-backed bond funds, as we’re assuming they are generally paying more yield than investment-grade bond funds.