Investment funds see largest outflows since 2008

Investors are withdrawing money from investment funds on a large scale, according to the latest figures from the Investment Company Institute. During the week of December 19, $56.2 billion in assets were removed, the highest amount since the week of 15 October 2008.

In recent weeks, investors have also been pulling a lot of money out of mutual funds, as the chart below shows. In the week of December 19, this amounted to $27 billion for equity funds and nearly $20 billion for bond funds.

Stock markets down

The outflow of assets corresponds to the decline in share prices this month. Investors are concerned about the growth of the global economy and expect central banks to raise interest rates further. The Federal Reserve raised interest rates again this month, bringing the total of rate hikes for this year to four.

Higher interest rates are making it more expensive and difficult for businesses and consumers to borrow money. This will have a negative impact on consumer spending and investment, and thus on economic growth. Rising interest rates can also lead to an increase in the percentage of bad loans, making banks more reluctant to lend to them.

Investors withdraw $56 billion from mutual funds

Bad year for equities

Due to the correction of the past three months, most stock markets have reported their gains for this year Forfeited. At the time of writing, the Dow Jones is down nearly 7% for the whole of 2018, while the S&P 500 index is down nearly 8% from its premise at the beginning of this year. The European stock markets performed significantly worse this year. The AEX index closed on Friday at 483.20 points, with which the Amsterdam exchange has already fallen more than 11% this year. The German stock exchange closes the year with a loss of almost 18%, while the Milan stock exchange closed more than 16% lower on Friday than at the beginning of this year.

Investors are seeking refuge in safe havens such as government bonds and precious metals. U.S. 10-year bond yields have fallen since October from 3.2% to 2.7%, as there is a lot of interest in this relatively safe and highly liquid debt document. Gold and silver are also proving their safe-haven status in uncertain times. Over the past three months, the Gold price increased by almost ten percent to €35,790 per kilo. The silver price rose by almost 3% to €417 per kilo in the same period.