Investors often try to find the best moment for their investments. This practice is called market timing. To find this sweet spot, one needs to find the right moment in which the respective asset has a favorable price and an underlying upward trend. One driver of trends in the markets might be flows into respective fund products, therefore fund flows could be used to determine whether a general trend is backed by investors or not.
As we do regular fund analysis for the European fund market, we wanted to investigate if the fund flows in Europe follow a clear pattern over the long-term, or if the fund flows in Europe are more of a random walk which is driven by short-term trends.
Defining the Population of the Study
Within this study we took all products classified as mutual funds or ETFs listed in the Refinitiv Lipper database into consideration. The study covers the flows (in EUR) from all mutual funds and ETFs registered for sales in at least one European country within the following asset types: alternatives, bonds, commodities, equities, mixed-assets, money market, other, and real estate between January 1, 2000, and December 31, 2021.
To get a survivorship bias-free view, we included those funds and ETFs which have been closed or merged within the analyzed time period. In this regard it is noteworthy that the outflows at the closure date and the inflows on the merger date have been neutralized to avoid any flows that have been caused by corporate actions and not by investors.
To evaluate the flow data, the overall time period has been cut into single month periods, and all flows in mutual funds and ETFs within a respective asset type have been cumulated on a monthly basis.
Which Months are the Best-Selling Months for Which Asset Type?
The first important information with regard to the answer of the question of which months are the best-selling months for which asset type is to evaluate which month had the highest number of best-selling periods overall. With regard to common assumptions, it might not be surprising that January was the month with the highest number of best-selling periods (28) from all asset types. It was followed by February (18) and May (18).
As Graph 1 depicts, January was in fact only the best-selling month by number of periods for equities and money market products, while February was the best-selling month for commodities. April was the best-selling month for bond funds, while May was the best-selling month for alternatives and “other” funds. Real estate funds see the highest number of best-selling periods in June, while December was the best-selling month for mixed-asset products.
Graph 1: Number of Times a Month was the Best-Selling Month by Asset Type (January 1, 2000 – December 31, 2021)
Source: Refinitiv Lipper
Graph 1 also shows that the number of best-selling months is somewhat randomly distributed over the course of the single years. This is not surprising since one would expect that the flows by asset type follow the trends of the underlying markets.
Therefore, one must analyze the average monthly flows by asset type to see if there are months that are in favor of investors. In the following we are focusing on bond, equity, and mixed-assets products, since the other asset types only play a minor role in the European investment industry or as for money market products are driven by specific factors, like corporate activity, which can’t be eliminated from the overall flow pattern. This, therefore, distracts from the overall picture.
Bond Products
As graph 2 shows, April was not the only the month with the highest number of best-selling periods, it was also the month with the by far highest average monthly flows into bond products overall. The positive average flow pattern for all months during the observation period might be caused by the fact that interest rates were generally declining over the course of the observation period, which made bonds a favorable investment despite any negative short-term trends in some market segments.
More generally, graph 2 may lead to the assumption that European investors tend to invest more money into bond products in April, July, May, February, and January, than they do in June, November, September, December, October, or March.
Graph 2: Average Flows in Bond Products per Month, January 1, 2000 – December 31, 2021
Source: Refinitiv Lipper
Equity Products
Graph 3 depicts that the flows for equity funds follow the trends of the underlying markets, as there are massive swings in the flow pattern from one month to the next. Nevertheless, it also shows that after December, November seems to be the preferred month for European investors to buy equity products. This pattern might be caused by the fact that investors want to participate in the so-called year-end rally which often occurs in December and continues in the first weeks of January. This effect may also be a reason for the strong average flows over January and February. Another reason for these strong inflows might be the so-called January effect, which has been analyzed and explained in an article by my colleague Jack Fischer earlier this year.
Graph 3: Average Flows in Equity Products per Month, January 1, 2000 – December 31, 2021
Source: Refinitiv Lipper
Mixed-Assets Products
Similar to bond products, mixed-assets products had no month with average outflows during the observation period. This overall flow pattern might be caused by the strong demand for mixed assets products since after the financial crisis (2008). Nevertheless, it seems like European investors prefer February, April, and May for investing in mixed-assets products.
Graph 4: Average Flows in Mixed-Assets Products per Month, January 1, 2000 – December 31, 2021
Source: Refinitiv Lipper
As shown in the graphs, the fund flows in Europe are mainly driven by the trends from the underlying assets, or as in the case for mixed-assets products by a specific investment demand from the investors who in this case were often looking for diversification and alternatives for their bond portfolios.
Nevertheless, the data suggests that European investors are chasing additional returns from the year-end rally in the equity markets, even as this event is not happening every year.
The views expressed are the views of the author, not necessarily those of Refinitiv Lipper or LSEG.
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