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July 14, 2014

Monday Morning Memo: European investors buy risk in May to enhance returns

by Detlef Glow.

As the liquidity on the exchanges goes down over the summer, the security markets become more vulnerable to short-term losses and therefore less predictable. In this regard, a number of investors follow the rule Sell in May and go away.” However, this year investors in Europe were net buyers of mutual funds for May. As a result the European mutual fund industry enjoyed overall net inflows of €35.3 bn into long-term mutual funds for May. Roughly half of these flows were gathered by bond funds (+€18.6 bn), followed by mixed-asset products (+€9.7 bn) and equity funds (+€6.2 bn). The positive trend in May was also reflected in the flows into the other asset types; alternative/hedge funds (+€0.6 bn) and funds from the “other” peer group (+€0.3 bn) enjoyed net inflows as well as property products (+€0.3 bn). Commodity funds (-€0.4 bn) was the only product type facing net outflows for May.

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Over the course of the year 2014 so far the European fund industry enjoyed net inflows of €202.4 bn into long-term mutual funds. With net inflows of €94.7 bn so far, bond funds were the main contributor, followed by equity funds (+€51.0 bn) and mixed-asset products (+€50.0 bn). Funds from the “other” peer group (+€4.4 bn), property products (+€1.7 bn), and alternatives/hedge funds (+€1.7 bn) enjoyed net inflows also, while commodity funds (-€0.5 bn) suffered net outflows.

Money Market Products

Even money market products posted net inflows for May, with money market funds enjoying inflows of €0.6 bn and enhanced money market funds showing inflows of €0.1 bn.

After strong net outflows (-€1.4 bn) for April, money market USD saw by far the highest net inflows (+€8.1 bn) for May, followed by money market NOK (+€0.1 bn) and money market AUD (+€0.05 bn). On the other side of the table, money market EUR suffered the highest net outflows (-€4.6 bn) of all fund sectors covered in the Lipper FundFile database, bettered somewhat by money market GBP (-€3.0 bn) and money market CHF (-€0.2 bn).

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

14-07 Fund Flows Graph 1 - Flows by Asset Type

Source: Lipper FundFile

Fund Flows by Sectors

An analysis of the flows on the sector level shows that asset allocation products (+€6.1 bn) were once again the best selling asset class in the long-term funds segment, followed by bonds emerging markets (+€3.4 bn) and equities emerging markets (+€2.8 bn) as well as mixed-asset conservative (+€2.8 bn) and bonds EUR (+€2.1 bn). At the other end of the spectrum guaranteed funds (-€1.4 bn) suffered net outflows, bettered somewhat by equities North America mid-/small-caps (-€0.8 bn) along with equities Switzerland (-€0.8 bn), equities United Kingdom (-€0.8 bn), and bonds USD (-€0.5 bn).

Fund Flows by Markets

Single fund market flows for long-term funds showed a positive but nevertheless mixed picture for May; 8 of the 33 markets covered in this report showed net outflows. The single market with the highest inflows was Italy (+€4.0 bn), followed by Spain (+€2.8 bn) and France (+€2.2 bn). Meanwhile, Switzerland (-€1.6 bn), the Netherlands (-€0.4 bn), and Belgium (-€0.1 bn) stood on the other side of the table.

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

 14-07 Fund Flows Graph 2 - Flows by Market

Source: Lipper FundFile

Fund Flows by Asset Type

Within the bond sector funds domiciled in the international cross-border hubs (+€11.7 bn) dominated the scene, followed by funds domiciled in Italy (+€1.7 bn), Spain (+€1.6 bn), and France (+€1.5 bn) as well as Germany (+€0.4 bn). On the other side Belgium (-€0.4 bn) was the domicile with the highest net outflows from bond funds, bettered somewhat by funds domiciled in the Netherlands (-€0.1 bn) and Russia (-€0.1 bn).

The international cross-border hubs (+€6.0 bn) also dominated the scene in the equity segment, followed by funds domiciled in Spain (+€1.0 bn), Finland (+€0.6 bn), and Norway (+€0.5 bn) as well as Sweden (+€0.4 bn). On the other side of the table Switzerland was the domicile with the highest net outflows from equity funds (-€2.0 bn), bettered by funds domiciled in the United Kingdom (-€0.6 bn) and Germany (-€0.5 bn).

Fund Flows by Promoter

Once again, BlackRock, with net sales of €3.4 bn, was the best selling group of long-term funds for May, ahead of UBS (+€1.3 bn) and Unicredit/Pioneer (+€1.3 bn) as well as Anima (+€1.3 bn) and JP Morgan Asset Management (+€1.2 bn).

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

 14-07 Fund Flows Graph 3 - Market Share Promoter

Source: Lipper FundFile

On a single-asset basis BlackRock was the best selling promoter of bond funds (+€1.5 bn) for May, followed by Anima (+€1.0 bn) and Royal Bank of Canada (+€0.9 bn) as well as UBS (+€0.8 bn) and Prudential/M&G (+€0.7 bn).

Within the equity space BlackRock (+€1.7 bn) stood at the top of the table, followed by KBC (+€1.3 bn) and Société Générale (+€0.6 bn) as well as Deutsche Asset & Wealth Management (+€0.6 bn) and Kommunal Landspensjonskasse (+€0.5 bn).

Best Selling Funds

The best selling fund in Europe for May was Pioneer Structured Solution Fund-Unicredit a Formula Europa Luglio 2019—from the protected funds category—with estimated net sales of €0.7 bn, followed by M&G Optimal Income Fund—from the bonds flexible category (+€0.7 bn)—and Mercer Global Investments-Euro Nominal Bond Long Duration Fund—from the bonds EUR category (+€0.6 bn). Pioneer Structured Solution Fund-Unicredit A Formula Selezione Dividendo Luglio 2019—from the protected funds category (+€0.6 bn)—and Russell Investment Company PLC-Acadian Emerging Markets Equity UCITS II Fund—from the equity emerging markets category (+€0.6 bn)—also benefitted from net inflows.

The views expressed are the views of the author, not necessarily those of Refinitiv.

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