By David Oakley in London
Published: July 9 2010 19:58 | Last updated: July 9 2010 20:40
Investors have poured tens of billions of dollars this week into money market funds – considered to be among the safest assets – amid fears that a double-dip recession in the developed world could send financial markets tumbling.
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The global funds, which are seen as a proxy for cash, enjoyed their biggest weekly inflows in 18 months, absorbing $33.5bn, research group EPFR Global said on Friday.
Some of the world’s biggest fund managers are now holding up to 40 per cent of cash in their portfolios. Before the financial crisis, they held as little as 5 per cent.
In spite of this week’s powerful rally in equities, driven by hopes the eurozone debt crisis may be past its worst, the large volumes heading into money market funds suggest investors are worried about the risk of another slide in share prices.
The fear of a debt default by one of the weaker eurozone countries, slowing growth in China and doubts over the strength of the US recovery have emerged as the main threats to the global economy.
Chris Tuffey, co-head of capital markets for Europe, the Middle East and Africa at Credit Suisse, said: “This is about capital preservation.”
Inflows into money market funds in the week to Wednesday were the highest since January 2009 when $37.7bn was put into the funds. The funds tracked by EPFR include US and some non-US funds. Of the $3,000bn tracked, about two-thirds are US funds.
Investors have also been investing money in gold as a hedge against the growing volatility in financial markets. The lure of gold and precious metals has helped commodities funds top a list of sectoral funds tracked by the group.
They committed $419m to these funds, taking year-to-date inflows to more than $11bn.
The world’s big fund managers are facing difficult investment decisions as they need to put money into assets that beat the benchmark indices against which their performance is measured.
Recent market volatility – the S&P 500 gained 4.8 per cent this week having tumbled 15 per cent from its 2010 high in April – has sharpened that dilemma.
Money market funds offer yields of about 0.5 per cent, lower than those on government bonds and corporate bonds.