Investors are pouring into global capital funds with a fervor never seen before.
About $ 580 billion will be added to the sector in the first half of 2021, putting the category on track for a record entry, according to data provider EPFR.
Strategists with Bank of America estimate that if the rate of income continues at the same clip for the rest of the year, capital funds will take more money in 2021 than in the previous 20 years combined.
Capital funds have boosted those inflows in an ever-growing stock market, with key indices scaling to a record high last week as the economic recovery from the pandemic gains momentum. The S&P 500 is up more than 15 percent this year, while the global FTSE index has gained just over 12 percent.
Relatively low bond yields – and the fact that more than $ 12tn of debt trading with a yield below zero – have amplified the global stock market’s appeal of $ 117tn.
“There has been a real seismic shift in the economy and where the growth in earnings comes from,” said Diane Jaffee, portfolio manager with TCW Wealth Manager. “Even with the most conservative estimates of inflation, your real return on bonds is negative.”
Revenues have been broadly based, with large additions to both global funds and funds buying American, Japanese or European stocks. In recent weeks, investors have also shown a preference for both growth and technology stocks in the United States, while discussing how high inflation will remain and whether the so-called inflation trade continue to oscillate.
Additions to sovereign bond funds have, on the other hand, been relatively quiet this year at $ 33 billion, EPFR data have shown.
Jaffee said she expected investors to continue to support the action this year, particularly in the United States where the country has implemented Covid-19 vaccinations at a much faster rate than to most developed markets. But she and others have warned that a shock to loan yields – for example from a mis-step policy by the US central bank – remains the big risk.
“While we are at low risk of tightening right now, the issue of political communication is very much on the table,” said Nicholas Colas, co-founder of DataTrek.
Colas noted that U.S. stocks have done well even after the 2013 outbreak, when the Federal Reserve presidency encouraged market volatility by saying that the central bank will, at some point, limit the their bond purchase program.
But Colas added: “While the 2013 conical fury period has been good for action, we can’t fully rule out the possibility that this time it could be different.”