Monday Morning Memo: European investors shy away from long-term mutual funds

Jonathan Boyd
23 January 2017

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December was another month that showed a negative picture for long-term mutual funds; the European fund promoters faced net outflows from alternative UCITS funds (-€2.5bn), bettered by bond funds (-€2.0bn) and “other” products (-€0.8bn). On the other side of the table equity funds (+€1.6bn) were the asset type with the highest net inflows in the long-term mutual fund segment for December, followed by mixed-asset funds (+€1.1bn) and real estate funds (+€0.1bn) as well as commodity products (+€0.1bn). These fund flows added up to overall net outflows of €2.3bn from long-term investment funds for December. Exchange-traded funds (ETFs) contributed €4.9bn to the inflows. These flows may indicate that European investors were trying to anticipate the possibility of increasing interest rates. A more detailed look at the sector level shows that they in fact did further reduce some of their emerging-market and corporate-bond exposure as well as their overall euro exposure.

Money Market Products

Money market products (+€3.7bn) were, even in an environment with low overall flow numbers, the best selling asset type for December. Besides mutual funds investing in money market instruments, ETFs investing in these instruments also enjoyed net inflows (+€0.001bn).

This flow pattern led the overall fund flows to mutual funds in Europe to net inflows of €1.4bn for December. With these overall inflows the European fund industry enjoyed net inflows of €268.7bn for the year 2016.

Money Market Products by Sector

Money Market GBP (+€9.8bn) was the best selling sector overall for December, followed by Money Market USD (+€9.3bn) and Money Market EUR Leveraged (+€1.9bn). At the other end of the spectrum Money Market EUR (-€17.7bn) suffered the highest net outflows of all sectors, bettered by Money Market AUD (-€0.2bn) and Money Market SEK (-€0.1bn). Comparing this flow pattern with the flow pattern for November shows that European investors further increased their positions in the British pound sterling and the U.S. dollar while selling the euro.

Graph 1: Estimated Net Sales by Asset Type, December 2016 (€bn)

Source: Thomson Reuters Lipper

Fund Flows by Sectors

Within the segment of long-term mutual funds Bond EUR Short Term (+€2.6bn) was the best selling sector, followed by Bond Global High Yield (+€2.5bn), Equity US Small & Mid Cap (+€2bn), and Bond USD High Yield (+€1.7bn) as well as Equity Eurozone (+€1.3bn).

Graph 2: Ten Top Sectors, December 2016 (€bn)

Source: Thomson Reuters Lipper

At the other end of the spectrum were the sectors that had been in the favor of European investors over the last few months. Equity Emerging Markets Global (-€2.8bn) suffered the highest net outflows from long-term mutual funds, bettered somewhat by Bond EMU Government (-€2.1bn) and Bond EUR Corporates (-€1.8bn) as well as Bond Emerging Markets Global in Local Currencies (-€1.6bn) and Absolute Return EUR Medium Term (-€1.4bn).

Graph 3: Ten Bottom Sectors, December 2016 (€bn)

Source: Thomson Reuters Lipper

Fund Flows by Markets

Single fund domicile flows (including those to money market products) showed a positive picture for December, with 20 of the 34 markets covered in this report showing net inflows and 14 showing net outflows. Ireland (+€23.5bn), driven by money market products (+€20.1bn), was the fund domicile with the highest net inflows, followed at a distance by Sweden (+€1.9bn), Belgium (+€1.6bn), Spain (+€1bn), and Denmark (+€0.7bn).On the other side of the table France was the single fund domicile with the highest net outflows (-€16.7bn), bettered by Luxembourg (-€5bn) and the Netherlands (-€4.8bn).

Graph 4: Estimated Net Sales by Fund Domiciles, December 2016 (€bn)

Source: Thomson Reuters Lipper

Within the bond sector, funds domiciled in Ireland (+€3bn) led the table for December, followed by those domiciled in France (+€1.7bn), Spain (+€0.5bn), Sweden (+€0.3bn), and Italy (+€0.1bn). Bond funds domiciled in Luxembourg (-€3.8bn), the Netherlands (-€1.6 bn), and the United Kingdom (-€0.5bn) stood at the other end of the table.

For equity funds, products domiciled in Belgium (+€1.6bn) led the table for December, followed by funds domiciled in Sweden (+€1.4bn), Denmark (+€0.7bn), and Ireland (+€0.6bn) as well as Germany (+€0.5bn). Meanwhile, the Netherlands (-€2.9bn), Switzerland (-€0.9bn), and Luxembourg (-€0.8bn) were the domiciles with the highest net outflows from equity funds.

With regard to mixed-asset products the United Kingdom (+€1.2bn) was the domicile with the highest net inflows, followed by funds domiciled in France (+€0.5bn), Germany (+€0.3bn), Sweden (+€0.1bn), and Denmark (+€0.1bn). On the other side of the table funds domiciled in Luxembourg showed the highest net outflows (-€0.5bn), bettered somewhat by funds domiciled in Italy (-€0.3bn) and the Netherlands (-€0.1bn).

France (+€0.4bn) was the domicile with the highest net inflows into alternatives for December, followed by Spain (+€0.2bn), Sweden (+€0.1bn), and Denmark (+€0.04bn) as well as Belgium (+€0.04bn). Luxembourg (-€2.1bn), bettered by Italy (-€0.5bn) and the Netherlands (-€0.3bn), stood at the other end of the table.

Fund Flows by Promoters

BlackRock, with net sales of €8.6bn, was the best selling fund promoter for December overall, ahead of JP Morgan (+€5.3bn) and Goldman Sachs (+€4bn).

Table 1: Ten Best Selling Promoters, December 2016 (€bn)

Source: Thomson Reuters Lipper

Considering the single-asset bases, Amundi (+€1bn) was the best selling promoter of bond funds for December, followed by Vanguard Group (+€0.9bn), AXA (+€0.9bn), and Carmignac Gestion (+€0.9bn) as well as BlackRock (+€0.6bn). Within the equity space BlackRock (+€2.1bn) stood at the head of the table, followed by KBC (+€1.6bn), Eastspring (+€0.8bn), and Amundi (+€0.7bn) as well as Danske (+€0.7bn). Union Investment (+€0.4bn) was the leading promoter of mixed-asset funds in Europe for December, followed by Allianz (+€0.3bn), M&G (+€0.3bn), and Aviva (+€0.2bn) as well as La Caixa (+€0.2bn). Aviva (+€0.4bn) was the leading promoter of alternative funds for the month, followed by Cigogne Management (+€0.3bn), BNY Mellon (+€0.3bn), and Goldman Sachs (+€0.2bn) as well as BIL Nordic (+€0.2bn).

Best Selling Funds

The ten best selling long-term funds gathered at the share-class level total net inflows of €8.9bn for December. The split of the ten best selling funds by asset type was not in line with the overall sales numbers, since alternative UCITS funds (with one fund, +€3.6bn) were the dominant asset type among the top-ten funds list, followed by bond funds (with five funds, +€2.8bn) and equity funds (with four funds, +€2.5bn).

Table 2: Ten Best Selling Funds, December 2016 (€m)