Gavekal Capital: Fed Says No Reach for Yield, But Fund Flow Data Show Otherwise

Tuesday, December 3, 2013

Fed Says No Reach for Yield, But Fund Flow Data Show Otherwise

We've heard repeatedly from Fed officials that there is no observable reach for yield, but mutual fund flow data paint a different picture. The latest stats (reflecting October data) released by the Investment Company Institute (ICI) show another month in which high yield bond funds (the red line) saw massive inflows and government bond funds (the dark blue line) saw massive outflows. The second chart just shows the three month sum of flows into the various types of bond funds and paints a similar picture. Basically, the individual investor is dumping risk free duration/interest rate risk for credit risk in a most obvious reach for yield.

In other fund flow news, we also note that aggressive growth equity funds saw the largest monthly inflow since January 2011.

About Gavekal Capital

Gavekal Capital is a US registered investment advisory firm that manages the Gavekal Knowledge Leaders Strategy. Knowledge Leaders are a group of the world’s leading innovators with deep reservoirs of intangible capital. These companies often possess competitive advantages such as strong brand, proprietary knowledge or a unique distribution mechanism. Knowledge Leaders are largely service-based and advanced manufacturing businesses, often operating globally. Gavekal Capital seeks to identify the world’s leading knowledge companies through a proprietary process that analyzes corporate knowledge investments.
We offer the Gavekal Knowledge Leaders Strategy in multiple products for global investors. For more information about our product offerings please visit http://www.gavekalcapital.com.
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