2014 was a record year for the European investment fund industry, the European Fund and Asset Management Association (Efama) has reported.
Net sales of European investment funds rose to an all-time high of €634bn in 2014 and assets under management broke through the €11trn mark thanks to a growth rate of 16%.
“This was all achieved despite sluggish growth, deflationary threats and geopolitical tensions in Europe,” Efama said and explained the overall positive outcome by four key factors:
- the quest for investment returns in a context of very low interest rates
- the attractiveness of investment funds in terms of investor protection,
- the great variety of investment strategies and risk-return profiles available in the investment fund market, and
- the role of central bank actions to prevent deflation and foster economic growth.
Bond funds attracted the largest net inflows as investors continued to expect long-term interest rates to fall further. Equity funds recorded lower net sales compared to 2013 against the background of a gloomy economic outlook and volatile stock markets. In this uncertain macroeconomic environment, the demand for balanced funds soared to a record level as the asset diversification and risk reduction offered by this type of fund continued to attract many investors.
On the other hand, money market funds suffered net withdrawals, albeit much less pronounced than in 2013. This confirms the view that many European businesses and institutions use money market funds as a short-term cash management tool even if they offer close-to-zero returns.
Net sales of Ucitsregistered a significant drop in the fourth quarter of 2014 as the low interest rate environment and uncertainty regarding the economic outlook weighed on demand. Nevertheless, Ucits posted net inflows of €59bn during the quarter, down from €130bn in the third quarter.
Long-term Ucits attracted net inflows of €68bn, down from €117bn. Demand for bond funds reduced to €25bn from €47bn in the previous quarter. Equity funds registered a turnaround in fund flows to post net outflows of €3bn, compared to net inflows of €14bn in the third quarter. Balanced funds continued to post relatively strong net inflows (€34bn), despite falling from net inflows of €52bn in the third quarter. Money market funds posted net outflows of €10bn, against net inflows of €13bn in the third quarter.
A deterioration in the economic outlook in an historically low interest rate environment hampered demand for long-term funds at the end of 2014, which can be seen in the net sales of bond and equity funds over the fourth quarter. Demand for equity funds remained relatively flat during the quarter, whereas demand for bond funds slipped into negative territory. Nevertheless, net sales of balanced funds remained robust as the diversification offered by this type of fund appealed to investors. Money market funds registered habitual end of quarter net outflows in December.