Even though the European mutual funds industry enjoyed overall net inflows of €317.7 billion into long-term mutual funds during the first nine months of 2014, it seems the industry was still in a consolidation mode at the product level.
REUTERS/Darrin Zammit Lupi
During third quarter 2014 the European fund industry created 429 new funds, but there were 324 funds liquidated and 318 merged during the same period. This meant the fund universe in Europe declined by 213 funds during the third quarter. For 2014 so far a total of 2,001 funds (1,163 liquidations and 838 mergers) were withdrawn from the European fund market, while only 1,488 new products were launched.
Figure 1 Launches, Liquidations, and Mergers of Investment Funds in Europe
Source: Lipper
As shown in Figure 1, the numbers of launches, liquidations, and mergers during Q3 2014 were—with the exception of liquidations, where the number has further decreased—in line with the long-term market trend established in Q1 2012.
Quarterly Comparison
The quantity of 429 newly launched funds for Q3 2014 was similar to what we saw for Q3 2013 (442). Compared with the peak in 2010, the number of newly launched products for Q3 2014 showed a decrease of around 43%.
Figure 2 Overview of New Fund Launches, Mergers, and Closures of Investment Funds
Source: Lipper
On the other hand, a shrinking number of fund liquidations (down approximately 30%—from 458 to 324, comparing Q3 2014 with Q3 2013) might become a supportive trend for a growing European fund universe in the near future. That said, the number of fund mergers has increased around 25%, from 255 during Q3 2013 to 318 during Q3 2014, showing that the industry is still consolidating its product ranges.
A Closer Look at Promoter Activity
Q3 2014 witnessed the launch of 429 funds: 149 equity funds, 120 bond funds, 117 mixed-asset funds, 38 “other” funds, and 5 money market funds. During the same period 324 funds were liquidated: 94 equity funds, 63 bond funds, 72 mixed-asset funds, 71 “other” funds, and 24 money market funds.
For Q3 2014, 318 funds were merged: 93 equity funds, 102 bond funds, 84 mixed-asset funds, 5 “other” funds, and 34 money market funds.
Figure 3 Overview of New Fund Launches, Mergers, and Closures, July 1, 2014–September 30, 2014
Source: Lipper
The net changes for Q3 2014 showed consistency, with all asset types showing negative net numbers. Of significance was the decrease in money market products, where 58 products were removed from the market while only 5 were launched. This asset type had only a 4% European market share, measured by the number of available products.
The increasing importance of mixed-/multi-asset products for investors and fund promoters is, besides in the sales numbers, also reflected in the number of newly launched products, where 117 new mixed-/multi-asset funds reflect the demand from investors for innovative products in the current low-interest-rate environment.
Outlook
Since consolidation in the European fund industry has not yet finished, we expect to see more funds closed or merged over the next few years. That said, Q3 2014 saw a slowdown in fund liquidations, while the number of fund mergers in Europe went up. That might be an indicator the industry has already liquidated the funds that are no longer in the favour of investors. The industry may now be lifting synergies within product ranges by merging funds with similar investment objectives to increase the profitability of the funds.
Even though the number of newly launched funds was down for Q3 2014, we expect to see an increasing number of product launches in coming quarters, if the market environment remains buoyant. We also expect the chase for returns—especially for yield in an ongoing low-rate environment—to be a driver for the future growth of new funds. Investors continue to show a willingness to venture into mutual funds to deliver the returns they need to fulfil their obligations. In this regard, one of the sectors that should see more fund launches in 2015 is mixed-/multi-asset products. These funds are in investors’ favour at the moment, which should drive new launches.
We expect the European fund industry will show net growth in terms of new funds at some point in 2015. That will depend on there being no external events that interrupt the recovery of the markets or the trust of European investors in mutual funds.
The views expressed are the views of the author, not necessarily those of Refinitiv
