Within the current market environment, the European fund industry enjoyed estimated net inflows for August. These inflows occurred in an unstable market environment in which some asset classes showed positive results, while others performed negatively over the course of the month. The market sentiment was still driven by hopes that central banks, especially the U.S. Federal Reserve, may have reached the last phase of their fight against high inflation rates and may, therefore, start to keep interest rates at least stable quite soon. Some investors already expect that there might be room for decreasing interest rates later this year or early next year. Nevertheless, there are still some concerns about geopolitical tensions, and the normalization of delivery chains, as well as a still possible recession in the U.S. and other major economies around the globe. These recessionary fears are raised by long-term inverted yield curves which are seen as an early indicator for a possible recession.
That said, mutual fund promoters (+€5.5 bn) and the promoters of ETFs (+€9.3 bn) enjoyed inflows over the course of the month. The inflows for actively managed funds were driven by inflows into money market products (+€19.4 bn), while the majority of other asset types faced estimated outflows. Within the current market environment, it is not surprising that European investors bought money market products since the Eurozone and other major economies have an inverted yield curve. This means that money market products offer a higher yield than medium or long-term bonds. More generally, long-term funds (-€6.2 bn) faced outflows, while money market products (+€20.9 bn) enjoyed inflows for the month. These flow numbers might be seen as a sign that European investors are further readjusting their portfolios to the current market environment.
Asset Type Flows August 2023
In more detail, money market funds (+€20.9 bn) were the best-selling asset type overall for August 2023. The category was followed by bond funds (+€0.9 bn), real estate funds (+€0.8 bn), and commodities funds (+€0.3 bn), while all other asset types faced outflows for the month. “Other” funds (-€0.04 bn), equity funds (-€1.2 bn), alternative UCITS funds (-€3.0 bn), and mixed-assets funds (-€4.0 bn) all saw outflows.
Graph 1: Estimated Net Flows by Asset and Product Type – August 2023 (in bn EUR)
Source: LSEG Lipper
Asset Type Flows Year to Date
The flow pattern for August drove the estimated overall net flows to €89.6 bn year to date.
While mutual funds (-€4.4 bn) faced estimated net outflows, ETFs enjoyed inflows of €94.0 bn over the course of the first eight months of 2023. The inflows into ETFs within the positive, but still somewhat uncertain, market environment repeat a trend we saw over other periods with uncertain or rough market conditions. These periods include the financial crisis, the euro crisis, and the second half of 2018—where ETFs enjoyed inflows while mutual funds faced massive outflows.
Despite the inverted yield curve for the Eurozone and other major economies in the world, European investors preferred bonds over the first eight months of the year, which might be seen as a sign that European investors may anticipate a possible ending of the interest hiking cycle of central banks around the globe led by the U.S. Federal Reserve.
Overall, long-term investment products (+€46.1 bn) and money market funds (+€43.3 bn) enjoyed inflows for the year so far.
Taking a closer look, bond funds (+€111.7 bn) were the asset type with the highest estimated net inflows overall for 2023 to date. It is followed by money market funds (+€43.4 bn), equity funds (+€10.8 bn), real estate funds (+€1.6 bn), and “other” funds (+€1.3 bn). On the other hand, commodities funds (-€2.5 bn), alternative UCITS funds (-€16.8 bn), and mixed-assets funds (-€59.9 bn) faced outflows for the year to date.
Graph 2: Estimated Net Sales by Asset and Product Type, January 1 – August 31, 2023 (Euro Billions)
Source: LSEG Lipper
Fund Flows Active vs Passive Products
The trend toward passive investment vehicles is widely discussed by market observers and asset managers, so it is worthwhile to highlight this topic, especially as not all passive products are ETFs. In fact, the flows into ETFs (+€94.1 bn) were outpacing the flows into passively managed index mutual funds (+€33.9 bn) for the first eight months of 2023.
Graph 3: Estimated Net Flows by Management Approach and Product Type (January 1 – August 31, 2023)
Source: LSEG Lipper
More generally, the trend toward passive products continued in Europe. Passive products (ETFs and index-tracking mutual funds) have enjoyed inflows (+€127.9 bn) over the course of the 2023, while actively managed mutual funds faced outflows (+€38.3 bn).
Fund Flows by Lipper Global Classifications, August 2023
When it comes to the overall estimated net sales for August, it was not surprising that Money Markey USD (+€21.0 bn) and Money Market EUR (+€7.0 bn) dominated the table of the 10 best-selling peer groups by estimated net flows for August. They were followed by Equity US (+€4.8 bn), Equity Global (+€4.0 bn), and Target Maturity Bond EUR 2020+ (+€2.8 bn).
Graph 4: Ten Best- and Worst-Selling Lipper Global Classifications by Estimated Net Sales, August 2023 (Euro Millions)
Source: LSEG Lipper
On the other side of the table, Money Market GBP (-€8.9 bn) faced the highest estimated net outflows for August, bettered by Bond Emerging Markets Global Hard Currencies (-€3.5 bn) and Equity China (-€2.2 bn).
A closer look at the best- and worst-selling Lipper Global Classifications for August shows that European investors were somewhat in mixed mode with regard to their risk appetite over the course of the month. At a closer look, European investors increased their positions in money market and bond classifications mainly in EUR and USD. In addition to this, they reduced their exposure to emerging markets and mixed asset products since these products may have been used to generate yield and income over the low interest rates period.
Fund Flows by Lipper Global Classifications, Year to Date
A closer look at the best- and worst-selling Lipper Global Classifications for the first eight months of 2023 shows that European investors are somewhat in a mixed mode with regard to their risk appetite since Money Market USD dominated the table of the best-selling Lipper Global Classifications.
As graph 2 shows, mixed-assets products faced the highest outflows over the course of the year 2023 so far, while bond products enjoyed the highest inflows. Given the overall trend it was not surprising that the table of the best-selling Lipper Global Classifications year to date is dominated by bond and money market classifications.
Money Market USD (+€49.2 bn) was the best-selling peer group for the year so far. It was followed by Equity Global (+€39.8 bn), Money Market EUR (+€38.7 bn), Target Maturity 2020+ (+€37.8 bn), and Bond EUR Corporates (+€16.5 bn).
Graph 5: Ten Best- and Worst-Selling Lipper Global Classifications by Estimated Net Sales, January 1 – August 31, 2023 (Euro Billions)
Source: LSEG Lipper
Given the current market environment it was not surprising to see so many different classifications on the opposite side of the table since European investors seem to readjust their portfolios to the new market environment. Money Market GBP (-€60.2 bn) faced the highest outflows for the year so far. It was bettered by Bond EUR Inflation Linked (-€18.7 bn), Real Estate UK (-€16.6 bn), Alternative Credit Focus (-€15.7 bn), and Absolute Return GBP High Risk (-€12.4 bn).
It is noteworthy that the estimated flows in money market sectors are not only a reflection of asset allocation decisions of investors since these products are also used by corporates as a replacement for cash accounts. In addition, one needs to bear in mind that the outflows from Money Market GBP are the aftermath of the LDI crisis. It is also important to recall that the yield curves in the Eurozone and other parts of the world are currently inverted, which means that money market instruments offer a higher yield than medium or long-term bonds.
Fund Flows by Promoters, August 2023
BlackRock (+€8.1 bn) was the best-selling fund promoter in Europe for August, ahead of HSBC (+€6.2 bn), BNP Paribas (+€5.8 bn), Morgan Stanley (+€3.9 bn), and State Street Global Advisors (+€3.5 bn). Given the product ranges of the 10-top promoters and the overall fund flow trends, it was surprising to see that ETFs played only a significant role for the positions of three of the leading fund promoters in Europe with a respective product offering.
Graph 6: Ten Best-Selling Fund Promoters in Europe, August 2023 (Euro Millions)
Source: LSEG Lipper
Fund Flows by Promoters, Year to Date
The largest fund promoter in Europe, BlackRock, (+€54.3 bn) is also the best-selling fund promoter in Europe over the course of the year so far, ahead of JPMorgan (+€20.3 bn), Vanguard (+€20.2 bn), HSBC (+€18.5 bn), and BNP Paribas (+€16.7 bn).
By looking at these numbers, one needs to bear in mind that the flows in the money market segment over the course of 2023 so far have a significant impact on the flow numbers and positions in the league table of the best-selling fund promoters in Europe.
Graph 7: Ten Best-Selling Fund Promoters in Europe, January 1 – August 31, 2023 (Euro Billions)
Source: LSEG Lipper
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This article is for information purposes only and does not constitute any investment advice.
The views expressed are the views of the author, not necessarily those of Refinitiv Lipper or LSEG.
