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Headlines
- Global managed volatility funds saw their first net inflows in over a year last month due to increasing market uncertainty and economic concerns.
- Analysts predict continued interest in these funds as market volatility intensifies, driven by issues like U.S. labor market worries and yen-funded carry trades unwinding.
- Key managed volatility funds experienced significant inflows, indicating heightened demand as investors seek stability amid fluctuating market conditions.
Global managed volatility funds experienced a notable shift last month, marking their first net inflows in over a year. This development reflects growing market unease about the economic outlook, monetary policy uncertainties, and inflated technology sector valuations.
According to LSEG Lipper data, these funds, designed to mitigate risks and offer steady returns during uncertain times, attracted $601 million in July, reversing a 14-month trend of outflows. Market observers anticipate continued inflows into these funds, spurred by recent market disturbances. Concerns about the U.S. labor market and the unwinding of substantial yen-funded carry trades have contributed to increased market jitters, impacting financial stocks as well.
Managed volatility funds generally allocate resources into low-volatility stocks or use strategies like options arbitrage to capitalize on discrepancies in price and volatility in the options market.
Earlier this month, the CBOE Volatility Index, often referred to as Wall Street's fear gauge, reached its highest point in over four years. Similarly, the ICE BofA MOVE Index, which tracks bond volatility, spiked. Although both indexes have since decreased, ongoing economic uncertainties and potential U.S. rate cuts continue to fuel concerns about further market turbulence in the near future.
Julia Khandoshko, CEO of international broker Mind Money, noted that demand for managed volatility funds is expected to remain robust through the end of the year. She attributed this to the upcoming U.S. elections and anticipated economic instability, which are likely to amplify market fluctuations. Khandoshko emphasized that these funds are commonly used as hedging tools to safeguard portfolios during periods of uncertainty.
LSEG data highlights that several managed volatility funds saw substantial inflows last month. The Invesco S&P 500 High Dividend Low Volatility ETF, JPMorgan Nasdaq Equity Premium Income ETF, and Fidelity SAI US Low Volatility Index Fund attracted approximately $774.58 million, $588.77 million, and $395.61 million, respectively.
