US fixed income strategies draw nearly USD100bn from institutional investors in Q2

Institutional investors continue to shun active equities strategies in favour of fixed income, with allocations to high yield, corporate, and core bond strategies in the US rising fastest.

US fixed income strategies received inflows of USD99.2 billion from institutional investors in the second quarter of 2020, excluding cash management products, according to eVestment’s Q2 2020 Traditional Asset Flows Report. 

The lion’s share of this, USD85.2 billion, flowed into active fixed income strategies, with another USD14 billion going towards passive counterparts. 

“The net inflows to US fixed income in Q2 2020 almost fully reversed the combined USD104.2 billion in outflows seen during the first quarter of the year,” writes Peter Laurelli, global head of Research at eVestment.

US high yield strategies saw the largest inflows on both a dollar basis and as a percentage of AUM, versus US corporates and core bonds. 

High yield has grown increasingly popular in recent months as spreads have widened due to the coronavirus sell-off in March. 

Defaults on US high yield debt have also remained under control, as Fitch Ratings reported monthly defaults of USD0.7 billion in mid-August, a “significant drop” from the USD12.8 billion averaged over the previous four months.

“At the other end of the US fixed income spectrum, bank loan strategies saw USD11.6 billion in investor outflows and both active and passive long duration strategies saw outflows of USD3.7 billion and USD4.1 billion respectively, representing some of the few US fixed income strategies to see outflows in Q2,” continues Laurelli.

Non-US fixed income managers suffered net institutional redemptions of USD12.2 billion across active and USD6.3 billion across passives.

Active equity managers were also hit with outflows of USD74 billion in the second quarter, tallying USD36.4 billion from active US and USD37.7 billion from active strategies focusing on equities outside the US. 

“While these were not positive results, both figures were significantly better than trend over the preceding nine quarters; USD69.3 billion quarterly average outflows for active US equity from Q1’18 to Q1’20 and USD54.8 billion for active non-US equity,” notes Laurelli. 

Institutional investors did allocate money into select equity strategies, including active US all cap growth, mid cap core, SMID cap value, and micro cap value managers. Value managers saw the most redemptions during the quarter, USD17.0 billion in total, which eVestment writes was “largely due to outflows from large cap and mid cap strategies”.

Overall, long-only asset managers reported assets under management of USD30.1 trillion to eVestment at time of publication, and net institutional flows totalled USD32.1 billion in the most recent quarter.