Investors move from corporate credit to core fixed income & reduce duration exposure in 2019
20 February 2020

U.S. fixed income ex-cash strategies reported net institutional inflows of +$33.98 billion for FY 2019 to eVestment Asset Flows. Institutional investors generally preferred core fixed income, eschewing strategies focused on credit. Furthermore, investors made significant allocations in intermediate duration products while redeeming from short and long duration.

Net inflows for diversified U.S. fixed income strategies targeting higher quality issues were healthy. Core plus (+$40.7 bn), core (+$35.9 bn), and passive core (+$29.2 bn) were the top recipients of institutional inflows in FY 2019. Public plan documents in eVestment Market Lens show that there are 27 current mandate opportunities for active and passive U.S. core strategies, which is more than any other U.S. fixed income group, so this robust inflow trend may continue. Meanwhile, investors withdrew the most assets from floating-rate bank loan strategies (-$49.8 bn) over the course of 2019. In addition to redemptions from higher yielding senior secured/second lien bank loans, institutions also removed -$11.3 bn from active high yield corporate debt products; flows to active corporate strategies as a whole did not fare well last year. Even products focusing on investment grade issues reported -$14.3 bn in net redemptions.

From a duration perspective, institutional investors favored intermediate duration over short and long duration strategies in 2019’s declining rate environment. Intermediate duration products had net inflows of +$3.7 bn (active) and +$4.4 bn (passive). Long duration strategies saw net outflows of -$18.1 bn (active) and -$4.1 bn (passive), and short duration outflows of -$15.6 bn (active) and -$12.7 bn (passive). The bulk of net outflows for long duration strategies came in the third quarter of 2019, with -$30.3 bn pulled from active products and -$3.7 bn from passive.

U.S. municipal strategies showed net positive flows for FY 2019 across all of their universes. Similar to the aforementioned institutional preference for intermediate duration, intermediate duration municipal strategies were favored over their short duration and long duration counterparts, and displayed the largest net inflows (+$23.3 bn). Yet unlike the aforementioned net redemptions from higher yielding bank/corporate strategies, the data shows investors were net allocators to high yield municipal strategies (+$14.4 bn). Whether municipal products can continue to gain new assets across all of their strategies this year remains to be seen.

Fixed Income: FY2019 Institutional Net Flows (USD Millions)

Source: eVestment Asset Flows

US Core Plus Fixed Income$40,710.94
US Core Fixed Income $35,852.74
US Passive Core Fixed Income $29,226.79
US High Yield Fixed Income -$11,305.01
US Corporate Fixed Income -$14,314.03
US Floating-Rate Bank Loan Fixed Income -$49,843.20
US Passive Intermediate Duration Fixed Income $4,438.66
US Intermediate Duration Fixed Income $3,693.44
US Passive Long Duration Fixed Income -$4,100.47
US Passive Short Duration Fixed Income -$12,724.52
US Short Duration Fixed Income -$15,590.23
US Long Duration Fixed Income -$18,143.58
US Municipal Fixed Income - Intermediate Duration $23,266.47
US High Yield Municipal Fixed Income $14,434.28
US Municipal Fixed Income - All Duration $6,434.00
US Municipal Fixed Income - Long Duration $2,069.16
US Taxable Municipal Fixed Income $1,219.36
US Municipal Fixed Income - Short Duration $432.94
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