September 25, 2017

Monday Morning Memo: European Investors Shy Away From Equities over August 2017

by Detlef Glow

European Fund-Flow Trends, August 2017

August was the eighth consecutive month showing a positive picture for long-term mutual funds. European fund promoters enjoyed net inflows into bond funds (+€21.3 bn), followed by mixed-asset funds (+€8.2 bn), and alternative UCITS funds (+€2.1 bn). Meanwhile, equity funds (-€1.2 bn), real estate funds (-€0.8 bn), “other” funds (-€0.7 bn), and commodity funds (-€0.02 bn) faced net outflows.

These fund flows added up to overall net inflows of €28.9 bn into long-term investment funds for August. ETFs contributed €3.2 bn to these inflows.

Money Market Products

Money market products (+€24.9 bn) were the best selling asset type overall for August. Opposite to their actively managed peers, ETFs investing in money market instruments posted a small net outflow (-€0.1 bn).

This flow pattern led the overall fund flows to mutual funds in Europe to net inflows of €53.8 bn for August and a positive €546.6 bn for 2017 so far.

Money Market Products by Sector

Money Market EUR (+€15.2 bn) was the best selling money market sector for August, followed by Money Market GBP (+€7.9 bn) and Money Market USD (+€0.8 bn). At the other end of the spectrum Money Market HUF (-€0.07 bn) suffered the highest net outflows overall, bettered slightly by Money Market NOK (-€0.07 bn) and Money Market CAD (-€0.02 bn). Comparing this flow pattern with the flow pattern for July 2017 showed that European investors used the weakness of the U.S. dollar to increase their exposure to the euro and the British pound sterling, while they still bought some U.S. dollars. These shifts might have been caused by asset allocation decisions as well as for other reasons such as cash dividends or payments, since money market funds are also used by corporations as replacements for cash accounts.

Graph 1: Estimated Net Sales by Asset Type, August 2017 (Euro Billions)

European Fund Flows August 2017

Source: Thomson Reuters Lipper

Fund Flows by Sectors

Within the segment of long-term mutual funds Bond Global USD Hedged (+€4.9 bn) was the best selling sector, followed by  Bond EUR Short Term (+€3.4 bn), along with Bond Emerging Markets Global in Hard Currencies (+€2.6 bn) and Bond Emerging Markets in Local Currencies (+€1.6 bn) as well as Mixed Asset EUR Conservative-Global (+€1.5 bn).

Graph 2: Ten Top Sectors, August 2017 (Euro Billions)

 European Fund Flows August 2017

Source: Thomson Reuters Lipper

At the other end of the spectrum Bond USD High Yield (-€1.4 bn) suffered once again the highest net outflows from long-term mutual funds, bettered somewhat by Real Estate UK (-€1.2 bn) and Guaranteed funds (-€0.7 bn) as well as Equity Global (-€0.7 bn) and Absolute Return EUR Medium (-€0.7 bn).

Graph 3: Ten Bottom Sectors, August 2017 (Euro Billions)

 European Fund Flows August 2017

Source: Thomson Reuters Lipper

Fund Flows by Markets (Fund Domiciles)

Single fund domicile flows (including those to money market products) showed in general a positive picture for August, with 24 of the 34 markets covered in this report showing net inflows and 10 showing net outflows. Luxembourg (+€24.3 bn) was the fund domicile with the highest net inflows, followed by France (driven by flows into money market products [+€11.6 bn]) (+€14.2 bn), Ireland (+€10.6 bn), the United Kingdom (+€3.7 bn), and Germany (+€1.5 bn).On the other side of the table Italy was the single fund domicile with the highest net outflows (-€0.7 bn), bettered somewhat by Switzerland (-€0.7 bn) and Jersey (-€0.3 bn).

Graph 4: Estimated Net Sales by Fund Domiciles, August 2017 (Euro Billions)

 European Fund Flows August 2017

Source: Thomson Reuters Lipper

Within the bond sector, funds domiciled in Luxembourg (+€9.3 bn) led the table for August, followed by those domiciled in Ireland (+€7.9 bn), France (+€1.9 bn), the United Kingdom (+€1.1 bn), and Germany (+€0.6 bn). Bond funds domiciled in Italy (-€0.4 bn), Spain (-€0.1 bn), and Belgium (-€0.1 bn) stood at the other end of the table.

For equity funds, products domiciled in the United Kingdom (+€1.6 bn) led the table for August, followed by funds domiciled in Spain (+€0.3 bn), Norway (+€0.3 bn), and Liechtenstein (+€0.1 bn) as well as Finland (+€0.1 bn). Meanwhile, Belgium (-€1.2 bn), Switzerland (-€1.1 bn), and Germany (-€0.6 bn) were the domiciles with the highest net outflows from equity funds.

With regard to mixed-asset products Luxembourg (+€4.5 bn) was the domicile with the highest net inflows, followed by funds domiciled in the United Kingdom (+€1.7 bn), Germany (+€0.9 bn), France (+€0.3 bn), and Spain (+€0.3 bn).. Opposite to this, Jersey (-€0.2 bn), Sweden (-€0.1 bn), and the Netherlands (-€0.1 bn) were the domiciles with the highest net outflows from mixed-asset funds.

Ireland (+€1.2 bn) was the domicile with the highest net inflows into alternative UCITS funds for August, followed by Luxembourg (+€1.0 bn), France (+€0.3 bn), and the United Kingdom (+€0.2 bn) as well as Germany (+€0.1 bn). Italy (-€0.8 bn), bettered by Belgium (-€0.03 bn) and Malta (-€0.02 bn), stood at the other end of the table.

Fund Flows by Promoters

Amundi, with net sales of €7.0 bn (driven by flows into money market products [+€5.4 bn]), was the best selling fund promoter for August overall, ahead of JP Morgan (+€5.7 bn) and BlackRock (+€4.7 bn). It is remarkable that a significant share of the inflows for BlackRock came from its ETF branch iShares, which contributed €1.8 bn to the overall net inflows.

Table 1: Ten Best Selling Promoters, August 2017 (Euro Billions)

 European Fund Flows August 2017

Source: Thomson Reuters Lipper

Considering the single-asset bases, PIMCO (+€5.0 bn) was once again the best selling promoter of bond funds for August, followed by BlackRock (+€1.9 bn), Amundi (+€1.4 bn), and Deutsche Bank (+€1.2 bn) as well as JP Morgan (+€1.0 bn).

Within the equity space BlackRock (+€1.5 bn) stood at the head of the table for August, followed by Vanguard Group (+€0.8 bn), Schroders (+€0.5 bn), and Old Mutual (+€0.3 bn) as well as Goldman Sachs (+€0.3 bn).

M&G (+€1.1 bn) was the leading promoter of mixed-asset funds in Europe for August, followed by Allianz (+€1.0 bn), JP Morgan (+€0.8 bn), and Union Investment (+€0.5 bn) as well as Amundi (+€0.3 bn).

Legg Mason (+€0.5 bn) was the leading promoter of alternatives funds for the month, followed by GAM (+€0.4 bn), Old Mutual (+€0.3 bn), and Pictet (+€0.3 bn) as well as H2O Asset Management (+€0.3 bn).

Best Selling Funds

The ten best selling long-term funds gathered at the share-class level total net inflows of €7.5 bn for August. Since bond funds dominated the overall sales numbers, it was not surprising that bond funds (+€4.1 bn) also dominated the sales table for the single funds, followed by mixed-asset funds (+€1.7 bn) and equity funds (+€1.7 bn).

Table 2: Ten Best Selling Long-Term Funds, August 2017 (Euro Millions)

European Fund Flows August 2017

Source: Thomson Reuters Lipper

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