After pouring record inflows into bond funds last year, investors are doing so at an even faster pace in 2020 — pushing 10 times more money into bonds than stocks.
By the numbers: More than $65 billion has flowed into bond funds this year, according to Lipper Refinitiv data provided to Axios, outpacing inflows through 2019's record pace when bond funds took in $316 billion.
Why it matters: As of Tuesday's close the S&P 500 had made 10 record highs in just six weeks this year, and has risen and held above 3350, a level many investment managers targeted in their 2019 end-of-year outlooks.
- The Nasdaq made its 12th record close Tuesday, but investors still don't seem to want equities, as stock funds have seen just $5.7 billion of inflows, year to date.
What's happening: Experts tell Axios that a confluence of issues are behind the bond-buying binge that has elevated purchases of investment-grade corporates and U.S. Treasuries over equities despite the stock market's strong performance.
- Price-to-earnings ratios on U.S. stocks are at historically high levels, and traders continue to brace for a downturn, especially with worries growing over the novel coronavirus outbreak.
- A growing number of baby boomers are switching their allocation to safer assets like fixed income as they near and enter retirement.
- Foreign buyers — especially from Japan, which is the top overseas holder of U.S. government debt — have increased buys since a September decision allowing pension funds to buy U.S. and international debt.
Yes, but: When removing equity mutual funds, the allocation to stocks so far in 2020 is significantly higher. Investors have been moving out of higher cost mutual funds and into low-fee (and even negative-fee) ETFs for years.
- Equity ETFs have seen $38.5 billion of inflows this year.
Still, that number is only a bit more than half of the bond fund inflow total, and bonds have seen a much higher volume of flows to funds excluding ETFs ($47.7 billion) than to ETFs ($17.9 billion).
The big picture: Thanks in no small part to the Fed holding interest rates at historically low levels and continuing its bond buying program, investors have piled into debt over the past two years.
- More than $382 billion has flowed into bonds since the start of 2019, Lipper's data shows, while $191 billion has flowed out of equity funds.