Investors turn to bond funds

Low interest rates fuel interest in high yield bonds.

Gross sales of retail investment funds in Hong Kong jumped 42% to a record $51 billion in the first 11 months of 2012, said the Hong Kong Investment Funds Association (HKIFA).

Bond funds comprised most Hong Kong’s fund sales in 2012. Gross sales hit $34.8 billion during the first 11 months of the year while net sales amounted to $13.6 billion for the same period, a 119% increase year-on-year.

HKIFA, however, warns investors should be aware of the potential risks associated with bond funds. It said that any bond or bond fund are subject to credit risk of the issuer, interest rate risk and currency risk and as the change in the economic environment.

Funds that have regular pay out, investors should understand whether the distributions are generated from income from the portfolio only or from the fund capital as well.

In contrast, equity funds sales lost its luster despite a strong showing in equity markets last year. Its share in the industry's total gross sales fell to 19% in 2012 from 84% in 2007.

Gross sales of equity funds came to $9.6 billion during the first 11 months of 2012, 39% lower year-on-year. Net outflows rose to $1.2 billion compared to net inflows of $572 million year-on-year. Hong Kong equity funds hit $34 million but were only slightly higher than total outflows.