Sovereign funds pile into U.S. assets at fastest since at least 2005

By Tom Arnold

LONDON, May 19 (Reuters) - Sovereign wealth funds stampeded into U.S. equities and fixed income in the first quarter, with inflows at the highest in at least 16 years, data from eVestment showed.

Net flows of $25.4 billion poured into all global equity and bond strategies run by third-party fund managers, the biggest calculated flow since at least 2005, according to the data.

Stocks climbed to record highs during the first quarter, and the year so far, as the economic recovery from the coronavirus gained traction, but there have also been pullbacks as government bond yields spiked on changing outlooks for economic growth and inflation after government stimulus and monetary easing.

Passively-managed U.S. equity funds sucked in a net $20.7 billion during the quarter, the most since at least 2005, as ultra-easy monetary policy bolstered risk appetite for all investors.

Saudi Arabia's Public Investment Fund (PIF) raised its U.S. stock holdings to $15.4 billion in the first quarter from nearly $12.8 billion at the end of 2020, a U.S. regulatory filing on Monday showed.

"Rather than a lot of new capital, I think this is driven by some portfolio reallocations, and some reduction in the withdrawals due to COVID relief," said Rachel Ziemba, Adjunct Fellow, Center for a New American Security.

"In the GCC (Gulf Cooperation Council), the big story has been stabilisation of the external accounts as oil prices rose which generally reduced the withdrawals from sovereign funds."

The eVestment data also showed investors moving into bond strategies. A net $9.9 billion flowed into all fixed income, with $5.2 billion into U.S. fixed income, the third consecutive quarter of strong inflows and the largest since at least 2005.

U.S. Treasury Inflation-Protected Securities (TIPS) were in demand, suggesting sovereign investors expected a tightening of Federal Reserve policy monetary.

Net inflows to TIPS reached $2.2 billion, the largest for at least sixteen years by more than two times.

Emerging market fixed income drew a net $3.5 billion, with the largest proportion to local currency strategies, also the largest calculated net flow since at least 2005. (Editing by Barbara Lewis)