MONDAY MORNING MEMO: Once again, bond funds are European investors’ darlings in March 2014

The European mutual fund industry enjoyed overall net inflows of €35.8 bn into long-term mutual funds for March 2014. The net inflows for March were mainly driven by flows into bond funds (+€21.5 bn), followed by mixed-asset funds (+€8.5 bn) and equity products (+€3.6 bn). In addition, funds from the “other” peer group (+€1.7 bn), property products (+€0.3 bn), as well as alternatives/hedge funds (+€0.1 bn) and commodity funds (+€0.03 bn) saw net inflows.

Over the course of the first quarter of the year 2014 the European fund industry enjoyed net inflows of €112.4 bn into long-term mutual funds. With net inflows of €50.1 bn, bond funds were the main contributor, followed by equity funds (+€32.6 bn) and mixed-asset products (+€26.0 bn). Funds from the “other” peer group (+€3.1 bn), property products (+€0.8 bn), and alternatives/hedge funds (+€0.5 bn) enjoyed net inflows also, while commodity funds (-€0.8 bn) suffered net outflows.

Money Market Products

In addition to the long-term mutual funds, enhanced money market products enjoyed net inflows of €0.3 bn for March, while money market funds faced net outflows of €7.2 bn. Despite the net outflows for February and March, money market funds still posted net inflows of €15.1 bn for first quarter 2014.

While money market GBP saw the highest net inflows (+€3.1 bn) for March, money market EUR suffered for the second month in a row the highest net outflows (-€9.8 bn) of all fund categories covered in the FundFile database.

Graph 1: Estimated Net Sales, March 2014 (Euro Millions)

Source: Lipper FundFile

Fund Flows by Sectors

With regard to long-term funds, asset allocation products (+€5.7 bn net) were the best selling asset class, followed by bonds UK Gilt (+€5.6 bn) and equities specialty (+€2.5 bn) as well as bonds flexible (+€2.5 bn) and bonds USD corporate investment-grade (+€2.4 bn). At the other end of the spectrum bonds global currencies (-€1.4 bn) suffered net outflows, bettered somewhat by equities Euroland (-€1.3 bn) as well as guaranteed funds (-€1.2 bn), equities emerging markets funds (-€1.1 bn), and equities Pacific ex Japan funds (-€0.9 bn).

Remarkably, the flows into bonds UK Gilt funds were driven by the U.K.-domiciled Scottish Widows Gilt Fund, which enjoyed net inflows of €5.6 bn because of a restructuring of existing assets from life and pension funds at Lloyds/Scottish Widows.

The asset allocation sector (+€17.1 bn) was the best selling long-term fund sector over the course of 2014 so far, followed by equities Europe (+€12.0 bn), equities North America (+€8.9 bn), equities specialty (+€8.1 bn), and bonds EUR (+€7.7 bn). On the other side of the table guaranteed funds (-€5.7 bn), equities Pacific ex–Japan funds (-€5.5 bn), and equities emerging markets funds (-€4.8 bn) suffered the highest net outflows for 2014, bettered somewhat by bonds emerging markets in local currencies (-€4.7 bn) as well as bonds global currencies (-€2.9 bn).

Fund Flows by Markets

The fund market flows for long-term funds were dominated by funds domiciled in the international cross-border hubs–mainly Luxembourg and Ireland (+€20.0 bn), followed by funds domiciled in the United Kingdom (+€6.8 bn), Italy (+€4.0 bn), and Spain (+€2.7 bn). Meanwhile, Denmark (-€0.6 bn), Austria (-€0.4 bn), and The Netherlands (-€0.4 bn) stood on the other side.

Graph 2: Estimated Net Sales by Country, March 2014 (Euro Millions)

Source: Lipper FundFile

As was to be expected, the international cross-border fund hubs (+€64.0 bn) dominated the flows over the course of first quarter 2014, followed by Italy (+€20.0 bn), Norway (+€8.4 bn), the United Kingdom (+€8.2 bn), and Spain (+€7.7 bn).

The inflows into equity funds were also dominated by international cross-border funds (+€5.7 bn), followed by funds domiciled in Switzerland (+€0.5 bn), Italy (+€0.4 bn), Spain (+€0.3 bn), and the Czech Republic (+€0.02 bn). Funds domiciled in Germany (-€0.8 bn), Finland (-€0.5 bn), and Sweden (-€0.5 bn) stood at the other end of the table.

Within the bond sector funds domiciled in the international cross-border hubs (+€9.3 bn) dominated the scene, followed by funds domiciled in the United Kingdom (+€6.0 bn), Spain (+€2.3 bn), and Italy (+€1.1 bn) as well as Sweden (+€0.9 bn). On the other side Denmark (-€0.5 bn) was the domicile with the highest net outflows from bond funds, bettered somewhat by funds domiciled in Austria (-€0.3 bn) and Russia (-€0.1 bn).

Fund Flows by Promoter

Lloyds/SWIP, with net sales of €5.4 bn, was the best selling group of long-term funds for March, ahead of BlackRock (+€1.9 bn), UBS (+€1.8 bn), JP Morgan (+€1.6 bn), and Intesa SP (+€1.4 bn). Because of the inflows into three newly launched institutional funds during January and February, Den Norske Bank (DNB) (+€9.4 bn) was the best selling group for first quarter 2014, ahead of BlackRock (+€9.1 bn) and UBS (+€6.8 bn).

Graph 3: Market Share of the Ten Best Selling Groups, March 2014 (%)

Source: Lipper FundFile

On a single-asset basis Lloyds/SWIP was the best selling promoter of bond funds (+€6.1 bn) for March, followed by ING (+€1.8 bn) and BlackRock (+€1.7 bn). Within the equity space Franklin Templeton (+€0.8 bn) stood at the top of the table, followed by Schroders (+€0.8 bn) and Henderson Global Investors (+€0.7 bn).