February 26, 2018

Monday Morning Memo: European Investors Show Increased Appetite for Risk in January 2018

by Detlef Glow.

Despite some disruptions in fund distribution coming from the introduction of MiFID II on January 8, 2018, January was the thirteenth consecutive month showing a positive picture for long-term mutual funds. European fund promoters enjoyed net inflows into equity funds (+€30.2 bn), followed by mixed-asset funds (+€14.0 bn), bond funds (+€10.5 bn), and alternative UCITS funds (+€4.2 bn) as well as real estate funds (+€0.7 bn) and commodity funds (-€0.5 bn). Meanwhile, “other” funds (-€1.3 bn) faced net outflows.

These fund flows added up to overall net inflows of €58.7 bn into long-term investment funds for January. ETFs contributed €12.5 bn to these inflows.

Money Market Products

Money market products (+€29.8 bn) also enjoyed healthy net inflows and were the second best selling asset type overall for January. Opposite to their actively managed peers, ETFs investing in money market instruments posted net outflows of €0.3 bn.

This flow pattern led the overall fund flows to mutual funds in Europe to net inflows of €88.6 bn for January 2018.

Money Market Products by Sector

Money Market USD (+€22.4 bn) followed by Money Market EUR (+€15.1 bn) were the two best selling fund sectors overall for January. Money Market PLN (+€0.3 bn) was the third best selling money market sector. At the other end of the spectrum Money Market GBP (-€6.7 bn) suffered the highest net outflows overall, bettered by Money Market EUR Leveraged (-€0.5 bn) and Money Market NOK (-€0.4 bn). Comparing this flow pattern with the flow pattern for December 2017 showed that European investors bought back into the U.S. dollar and the euro in January while they reduced their holdings in the British pound sterling. 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, January 2018 (Euro Billions)

European Fund Flows Review January 2018

Source: Thomson Reuters Lipper

Fund Flows by Sectors

Within the segment of long-term mutual funds Equity Global (+€11.6 bn) was the best selling sector, followed by Equity Emerging Markets Global (+€4.9 bn) along with Bond Emerging Markets Global in Hard Currencies (+€3.7 bn) and Bond Emerging Markets Global in Local Currencies (+€3.4 bn) as well as Mixed Asset EUR Balanced–Global (+€2.8 bn).

Graph 2: Ten Top Sectors, January 2018 (Euro Billions)

European Fund Flows Review January 2018

Source: Thomson Reuters Lipper

At the other end of the spectrum Equity UK (-€1.7 bn) suffered the highest net outflows from long-term mutual funds, bettered somewhat by Bond USD High Yield (-€1.3 bn) and Target Maturity Bond EUR 2020+ (-€1.1 bn) as well as Absolute Return EUR Medium (-€1.1 bn) and Bond USD (-€0.9 bn).

Graph 3: Ten Bottom Sectors, January 2018 (Euro Billions)

European Fund Flows Review January 2018

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 January, with 23 of the 34 markets covered in this report showing net inflows and 11 showing net outflows. Luxembourg (+€26.2 bn) was the fund domicile with the highest net inflows, followed by France (+€25.1 bn–the vast majority of these flows [+€23.6 bn] was into money market funds), Ireland (+€20.8 bn), Switzerland (+€5.4 bn), and the United Kingdom (+€4.4 bn).On the other side of the table Italy was the single fund domicile with the highest net outflows (-€1.9 bn), bettered by the Isle of Man (-€0.4 bn) and Jersey (-€0.3 bn).

Graph 4: Estimated Net Sales by Fund Domiciles, January 2018 (Euro Billions)

European Fund Flows Review January 2018

Source: Thomson Reuters Lipper

Within the bond sector, funds domiciled in Ireland (+€6.1 bn) led the table for January, followed by those domiciled in Luxembourg (+€2.8 bn), Switzerland (+€2.4 bn), Norway (+€1.0 bn), and the Netherlands (+€0.2 bn). Bond funds domiciled in Spain (-€1.2 bn), Italy (-€0.6 bn), and France (-€0.4 bn) stood at the other end of the table.

For equity funds, products domiciled in Luxembourg (+€13.8 bn) led the table for January, followed by funds domiciled in Ireland (+€6.0 bn), the United Kingdom (+€2.4 bn), and Switzerland (+€2.4 bn) as well as Germany (+€2.0 bn). Meanwhile, the Isle of Man (-€0.3 bn), Denmark (-€0.1 bn), and Iceland (-€0.1 bn) were the domiciles with the highest net outflows from equity funds.

With regard to mixed-asset products Luxembourg (+€5.7 bn) was the domicile with the highest net inflows, followed by funds domiciled in Spain (+€2.7 bn), Germany (+€1.3 bn), the United Kingdom (+€1.3 bn), and Belgium (+€0.8 bn). Opposite to this, Slovenia (-€0.01 bn), the Netherlands (-€0.01 bn), and Iceland (-€0.01 bn) were the domiciles with the highest net outflows from mixed-asset funds.

Ireland (+€3.1 bn) was the domicile with the highest net inflows into alternative UCITS funds for January, followed by Luxembourg (+€1.6 bn), France (+€0.7 bn), and Spain (+€0.5 bn) as well as Germany (+€0.1 bn). Italy (-€1.4 bn), bettered by Sweden (-€0.3 bn) and the United Kingdom (-€0.1 bn), stood at the other end of the table.

Fund Flows by Promoters

Amundi, with net sales of €9.0 bn, was the best selling fund promoter for January overall, ahead of BlackRock (+€8.7 bn) and UBS (+€4.5 bn).

Table 1: Ten Best Selling Promoters, January 2018 (Euro Billions)

European Fund Flows Review January 2018

Source: Thomson Reuters Lipper

Considering the single-asset bases, PIMCO (+€2.4 bn) was once again the best selling promoter of bond funds, followed by BlackRock (+€1.7 bn), Credit Suisse Group (+€1.1 bn), and Schroders (+€0.7 bn) as well as GAM (+€0.6 bn).

Within the equity space BlackRock (+€5.6 bn) stood once again at the head of the table, followed by Baillie Gifford (+€4.5 bn), UBS (+€3.5 bn), and Deutsche Bank (+€1.7 bn) as well as Amundi (+€1.5 bn).

JP Morgan (+€1.5 bn) was the leading promoter of mixed-asset funds in Europe for January, followed by BBVA (+€1.1 bn), Union Investment (+€0.9 bn), and Allianz (+€0.6 bn) as well as UBS (+€0.6 bn).

GAM (+€1.1 bn) was the leading promoter of alternatives funds for the month, followed by Legg Mason (+€0.7 bn), Old Mutual (+€0.5 bn), and H2O Asset Management (+€0.5 bn) as well as Schroders (+€0.4 bn).

Best Selling Funds

The ten best selling long-term funds gathered at the share-class level total net inflows of €12.3 bn for January. Since equity funds dominated the overall sales numbers, it was not surprising that equity funds (+€7.6 bn) dominated the sales table for the ten top single funds, followed by bond funds (+€1.9 bn) and mixed-asset funds (+€1.8 bn).

Table 2: Ten Best Selling Long-Term Funds, January 2018 (Euro Millions)

European Fund Flows Review January 2018

Source: Thomson Reuters Lipper

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