Euro HY funds see inflows again

Euro HY is back - Attractive relative value

It seems that outflows from Euro/European focused HY funds have stopped. Over the past two weeks the Euro focussed European domiciled funds have recorded healthy inflows putting an end to weeks of poor flows (Chart 1). With yield on offer now above 3% (HE00 index) investors are finding better entry point to add risk. Note the underperformance between EUR and USD high yield markets. With the spread gap now back to the lows (over the past year) European HY looks good value.

Over the past week…

High grade fund flows were negative for a second week. We note that inflows into sterling-focussed funds have been consistently positive for the past seven weeks despite the fluctuations in the euro and dollar flows.

High yield funds continued to record outflows (26th consecutive week). Looking into the domicile breakdown, US and more importantly Globally-focussed funds have recorded outflows, while the European-focussed funds recorded inflows, the second one in a row.

Government bond funds recorded an inflow, ending a short spell of outflows. All in all, Fixed Income funds flows were negative for a fourth week in a row.

European equity funds continued to record outflows for the ninth consecutive week. Over this period, the asset class has suffered almost $22bn of outflows, prompting the year-to-date cumulative flow number (based on weekly data) to dip to $6bn of outflows.

Chart 1: Euro/Europe focused European domiciled HY funds weekly flows ($mn)

Source: BofA Merrill Lynch Global Research, EPFR

Global EM debt funds had a third week of outflows, with the pace accelerating over the past weeks; last week’s outflow print has almost doubled vs. the week before. Commodity funds on the other hand had an inflow following a brief week of outflows.

On the duration front, long-term IG funds recorded another week of outflows, but at a much slower pace to the week before. Mid-term and short-end funds however recorded inflows.