Fund Flows & Huge Cucumbers

Recently, there have been record outflows from equity funds and record inflows into bond funds. This is likely due to the negative sentiment around the current market environment. As we continue to enjoy the longest bull market in history, many investors feel that it can’t last and are removing money from the riskier equity category.

 

As you can see from the chart below, $208 billion has moved out of equity funds and $339 billion has moved into government and corporate bond funds. This is in spite of most equity indexes being up well into the double digits for the year. The MSCI ACWI (All Country World) stock index fund is up over 16% for the year.

 

 

However, investors need to be careful that they are not taking undue risk by loading up on bonds. While they have been a great hedge against stock declines, there is still risk in the bond category. Usually, the higher a bond yields (interest), the higher the risk of default. And, just like stock prices can move up and down, so too can bond prices when interest rates change. As interest rates have recently declined, the prices of existing bonds have risen.

 

So, when you are looking at the bond mix in your portfolio, make sure they align with your goals. If you are someone seeking higher yields to generate income, you may have to be willing to stomach stock-like price swings. However, if you are and investor looking for hedges against stock declines, you may have to be willing to accept lower interest in exchange for stability.

 

Some analysts are suggesting that too much money flowing into bonds could create a bubble that would cause bond prices to fall. Year-to-date bond performance numbers have been abnormally large, so caution is advised.

 

Speaking of abnormally large, one of our more generous clients recently dropped off what have to be the largest cucumbers I have ever seen. After some Googling to figure out if these things were normal, we found out that they are Armenian Cucumbers and are actually considered a fruit by the scientific community.

 

Stapler for scale

 

My colleague Lucy and I are going to see how they work in what might become the largest Greek salad ever. I know you will all be sitting on the edges of your seats to hear how that turns out! 😊

 

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Fund Flows & Huge Cucumbers

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