Monday Morning Memo – Fund Flows Europe

Bullish European investors favour equities in January 2014

For January 2014 the European mutual fund industry enjoyed overall net inflows of €123.7 bn for long-term mutual funds. Opposite to the previous month, for January money market products enjoyed net inflows (+€25.2 bn). The net inflows into long-term mutual funds were mainly driven by flows into equity funds (+€12.9 bn) and mixed-asset funds (+€7.0 bn). In addition, bond funds saw net inflows of €5.0 bn. On the other side of the table, alternative/hedge funds (-€0.003 bn) stood nearly flat, while property products (-€0.3 bn) as well as “other” products (-€0.3 bn) and commodity funds (-€0.6 bn) showed moderate net outflows.

It is remarkable that the flows into bond funds were driven by two institutional funds (DNB AM Kort Obligasjonand DNB AM Lang Obligasjon) that were launched by the Norwegian Den Norske Bank (DNB) in January and enjoyed combined net inflows of €4.4 bn for January.

Single fund market flows for long-term funds showed a mixed picture for January, with Norway (+€3.8 bn), France (+€2.9 bn), and Spain (+€2.0 bn) leading the table. Meanwhile, the United Kingdom (-€0.8 bn), the Netherlands (-€0.7 bn), and Denmark (-€0.6 bn) stood on the other side.

Following the sales pattern for long-term funds were equities Europe (+€4.4 bn) and equities North America (+€4.2 bn), followed by asset allocation products (+€3.9 bn), bonds NOK (+€3.1 bn), and equities specialty (+€2.6 bn). At the other end of the spectrum bonds emerging markets in local currencies suffered net outflows of around  €2.7 bn, bettered somewhat by guaranteed funds (-€2.6 bn), equities Pacific ex-Japan (-€2.4 bn), equities emerging markets (-€1.9 bn), and bonds global currencies (-€1.8 bn).

With regard to the net-flows numbers, it appears European investors do believe in a recovery of the euro against the U.S. dollar, since money market EUR saw the highest net inflows (+€18.5 bn), while money market USD suffered the highest net outflows (-€2.7 bn) of all fund categories covered in the FundFile database. In addition, money market GBP (+€7.4 bn) was the category with the second highest net inflows for January.

Equity Funds

The inflows into equity funds were dominated by international cross-border funds (+€12.5 bn), followed by funds domiciled in Switzerland (+€0.7 bn), France (+€0.6 bn), and Spain (+€0.6 bn). Funds domiciled in the United Kingdom (-€1.0 bn), Germany (-€0.6 bn), and the Netherlands (-€0.4 bn) stood at the other end of the table.

As mentioned above, equities Europe (+€4.4 bn) and equities North America (+€4.2 bn) were the equity sectors with the highest net inflows, followed by equities Europe mid-/small-caps (+€1.9 bn), equities Japan (+€1.7 bn), and equities North America mid-/small-caps (+€1.1 bn).

Bond Funds

The bond sector showed a mixed picture, with funds domiciled in Norway (+€3.8 bn), Spain (+€2.4 bn), and France (+€1.1 bn) posting net inflows. Opposite to the equity segment, international cross-border funds (-€1.8 bn) stood at the other end of the table in the bond segment, bettered somewhat by funds domiciled in Denmark (-€0.5 bn) and Belgium (-€0.3 bn).

Within the bond sector bonds NOK (+€3.1 bn) showed, as mentioned above, the highest net inflows, followed by bonds specialty (+€1.1 bn), bonds short-term dynamic (+€1.0 bn), bonds USD corporates investment-grade (+€0.8 bn), and bonds European currencies corporate high yield (+€0.6 bn).

Top Promoter

With net sales of €5.7 bn Den Norske Bank (DNB) was the best selling group of long-term funds for January, ahead of BlackRock (+€3.0 bn) and Deutsche Asset & Wealth Management (+€1.9 bn). On a single-asset basis Den Norske Bank (DNB) was the best selling promoter of bond funds (+€5.4 bn), followed by BlackRock (+€1.5 bn) and Deutsche Asset & Wealth Management (+€1.3 bn). Within the equity space UBS (+€1.4 bn) stood at the top of the table, followed by BlackRock (+€1.0 bn) and J.P. Morgan Asset Management (+€1.0 bn).

Early indicators for February activity

Early indicators of provisional flows data for February 2014, looking at Luxembourg- and Ireland-domiciled funds, show that equity funds—with projected net inflows of around €9.6 bn—might take the lead in net flows for 2014, followed by bond funds (+€8.6 bn) and mixed-asset products (+€4.0 bn). It seems that money market products may continue to be heavily used by institutional investors; the estimates indicate net inflows of around €8.6 bn. Even though these numbers are estimates, it seems equity and mixed-asset funds are in European investors’ favour in 2014.