The European fund industry enjoyed healthy inflows over the first half of 2024. Opposite to mutual funds, ETFs had estimated net inflows in every month so far.
These inflows into mutual funds and ETFs occurred in a generally positive market environment. Nevertheless, equity markets looked somewhat vulnerable given the high valuations of the market leaders. With regard to this, it is not surprising that investors are nervous and reacting quite fast on any news that may impact the current market environment negatively.
This is not only true for economic news, as the geopolitical tensions in the Middle East, especially the developments around the Red Sea, are seen as a risk for the general economic growth in Western countries since a number of shipping companies these days avoid the passage of the Suez channel. It is, therefore, to be expected that the prolonged delivery times will cause some tensions for the still vulnerable delivery chains.
Market sentiment was further driven by hopes that central banks will start to lower key interest rates. While the European Central Bank (ECB) started to lower interest rates, it is still unclear if and when the U.S. Federal Reserve will start to lower the interest rates in the U.S. That said, the latest statements from the U.S. Fed on its expectations for the start of lowering interest rates might have caught some investors on the wrong foot since the central bank indicated that it may start the lowering of interest rates later and with less steps in 2024 than some investors expected. These statements might have impacted the estimated net flows in bond and money market ETFs.
As a result, some investors may have reviewed their expectations for bonds, as there is the risk that the inflation in the major economies might be more sticky than expected and central banks are held responsible to reach their inflation targets. Additionally, there are still some concerns about the possibility of a recession in the U.S. and other major economies around the globe. These fears have been raised by a lack of growth in some economies and the long-term inverted yield curves which are seen as an early indicator for a possible recession. The normalization of inverted yield curves might be another short-term challenge for the bond markets.
Assets Under Management in the European Fund Industry
Within this environment the assets under management in the European fund industry increased from €14,371.1 bn as of December 30, 2023, to €15,381.7 bn at the end of June 2024.
Graph 1: Assets Under Management in the European Fund Industry, January 1, 2003 – June 30, 2024 (in million EUR)
Source: LSEG Lipper
The increase in assets under management of €1,010.6 bn was mainly driven by the performance of the underlying markets (+€837.9 bn), while estimated net sales contributed €172.7 bn to the overall growth.
Assets Under Management by Product Type
The majority of assets under management in the European fund industry were held by actively managed mutual funds (€11,845.3 bn), followed by ETFs (€1,814.2 bn) and index tracking mutual funds (€1,722.2 bn). It is noteworthy that the assets under management in ETFs reached a new all-time high at the end of June 2024.
The gap in assets under management between index tracking mutual funds and ETFs decreased over the course of 2024 since the assets under management in ETFs surpassed the assets under management in index tracking mutual funds within the first half of 2024. This trend was driven by the higher inflows in ETFs (+€104.0 bn) compared to index tracking mutual funds (+€30.4 bn).
Graph 2: Market Share, Assets Under Management in the European Fund Industry by Product Type, June 30, 2024
Source: LSEG Lipper
The preference of European investors for ETFs compared to index tracking mutual funds started to become obvious in 2021.
Assets Under Management by Asset Type
In more detail, equity products (€6,601.7 bn) held the largest amount of assets, followed by bond products (€3,554.6 bn), mixed-assets products (€2,606.1 bn), money market products (€1,918.4 bn), alternatives products (€383.4 bn), real estate products (€244.4 bn), commodities products (€59.3 bn), and “other” products (€14.0 bn).
Graph 3: Market Share, Assets Under Management in the European Fund Industry by Asset Type, June 30, 2024
Source: LSEG Lipper
Assets Under Management by SFDR Article
With regard to the assigned article of the Sustainable Finance Disclosure Regulation (SFDR), it is no surprise that funds assigned to article 8 of the SFDR (€7,429.4 bn) held the largest amount of assets, followed by funds assigned to article 6 of the SFDR (€5,265.9 bn), funds with not assigned to an SFDR article (€2,332.8 bn), and funds assigned to article 9 of the SFDR (€353.6 bn).
Graph 4: Market Share, Assets Under Management in the European Fund Industry by SFDR Article, June 30, 2024
Source: LSEG Lipper
Since this report covers the whole of Europe, it is no surprise that a high percentage of assets under management are held by funds which are not assigned to an SFDR article. These funds are mainly domiciled in countries outside of the EU and are not registered for sales in the EU.
Asset Type Flows
Mutual funds (+€27.7 bn) and ETFs (+€19.3 bn) enjoyed inflows for the month. This flow pattern led to overall estimated net inflows of €47.1 bn over the course of June 2024.
Asset Type Flows June 2024
In more detail, money market funds (+€30.1 bn) were the best-selling asset type overall for June 2024. The category was followed by bond funds (+€15.2 bn), equity funds (+€6.9 bn), and alternatives funds (+€2.2 bn), while commodities funds (-€0.1 bn), “other” funds (-€0.1 bn), real estate funds (-€1.2 bn), and mixed-assets funds (-€6.1 bn) faced outflows.
Graph 5: Estimated Net Flows by Asset and Product Type – June 2024 (in bn EUR)
Source: LSEG Lipper
Asset Type Flows Year to Date
The flow pattern for June drove the estimated overall net flows in the European fund industry up to €172.7 bn for the year 2024 so far.
On closer inspection, mutual funds (+€68.7 bn) and ETFs (+€104.0 bn) enjoyed inflows over the course of the year 2024 so far. These inflows within the positive but still somewhat uncertain market environment are not considered unusual and might be a sign that European investors are somewhat in risk-on mode.
With regard to the inverted yield curves for the Eurozone and other major economies in the world, it is somewhat surprising that European investors favored bond products over the course of the year. That said, the inflows into bonds might be seen as a sign that European investors in June anticipate the ending of the interest hiking cycle of central banks around the globe led by the ECB and the Bank of England. That said, the U.S. Federal Reserve seemed to postpone its first interest rate cut further.
Overall, long-term investment products (+€106.0 bn) and money market funds (+€66.7 bn) enjoyed inflows for the year so far. That said, the estimated net flows for equities were dominated by the inflows into ETFs, while the inflows into bond funds were dominated by mutual funds.
Taking a closer look, bond funds (+€152.9 bn) were the asset type with the highest estimated net inflows overall for 2024 so far. It is followed by money market funds (+€66.7 bn), equity funds (+€18.9 bn), commodities funds (+€0.5 bn), and “other” funds (+€0.1 bn). On the other side of the table, alternatives funds (-€5.6 bn), real estate funds (-€7.0 bn), and mixed-assets funds (-€53.8 bn) faced outflows for the year so far.
Graph 6: Estimated Net Sales by Asset and Product Type, January 1 – June 30, 2024 (Euro Billions)
Source: LSEG Lipper
The high outflows from mixed-assets funds might be caused by investors who used mixed-income funds to achieve their income goals during the low interest rate environment, switching their market exposure back to bonds, given the current interest rate environment.
In addition, one needs to bear in mind that the flows in money market products are impacted by a combination of asset allocation decisions of portfolio managers and corporate actions such as cash dividends or cash payments since money market funds are also used by corporations as replacements for cash accounts.
Given the inverted yield curves, it can be assumed that a number of investors use money market products as a replacement for cash accounts and in some cases even bonds, since money market products offer a comparably high yield within the current interest rate environment. Therefore, it can be expected that the inflows in money market products may revert once the yield curves start to normalize.
Fund Flows Year to Date by SFDR Article
The flow pattern by SFDR article shows that European investors prefer funds which are assigned to article 6 of the SFDR. Since these products do not foster sustainable criteria, one may think that European investors are neglecting sustainable investment strategies in their portfolios.
That said, one needs to bear in mind that the majority of ETFs in Europe are tracking plain vanilla indices and are therefore assigned to article 6 of the SFDR. The same is somewhat true for money market products. This means that the flows by SFDR article are rather caused by product and asset type preferences than by a preference for funds which do not use ESG/sustainability criteria.
In more detail, funds assigned to article 6 of the SFDR (+€109.2 bn) were the product type with the highest estimated net inflows overall for 2024 so far, followed by funds assigned to article 8 of the SFDR (+€52.6 bn) and funds with no assignment to SFDR (+€28.1 bn). Opposite to this, funds assigned to article 9 of the SFDR (-€17.2 bn) faced outflows for the year so far.
Graph 7: Estimated Net Sales by Asset and Product Type, January 1 – June 30, 2024 (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 (+€104.0 bn) were outpacing the flows into passive index mutual funds (+€30.4 bn) by a large margin. Opposite to this, actively managed long-term mutual funds faced outflows (-€18.7 bn) for the first six months of 2024.
Graph 8: Estimated Net Flows by Management Approach and Product Type (January 1 – June 30, 2024)
Source: LSEG Lipper
Some market observers may speculate that European investors are selling actively managed products and buying back passive products, especially within the Lipper global classification Equity U.S. Generally speaking, one could agree with this thesis by looking at the high-level numbers, but since this can’t be proven by facts I would not totally agree with this assumption.
Fund Flows by Lipper Global Classifications
Fund Flows by Lipper Global Classifications, June 2024
Given the general fund flows trend in Europe, it was not surprising that Money Market EUR (+€15.3 bn) dominated the table of the 10 best-selling peer groups by estimated net flows for June. This classification was followed by Equity Global (+€10.4 bn), Equity U.S. (+€8.7 bn), Money Market USD (+€7.0 bn), and Money Market GBP (+€3.9 bn).
Graph 9: Ten Best- and Worst Lipper Global Classifications by Estimated Net Sales, June 2024 (Euro Billions)
Source: LSEG Lipper
On the other side of the table, Equity UK (-€6.3 bn) faced the highest estimated net outflows for June, bettered by Mixed Asset EUR Conservative – Global (-€2.1 bn) and Equity Eurozone (-€1.8 bn).
A closer look at the best and worst Lipper Global Classifications by estimated net sales for June shows that European investors are somewhat in a mixed mode with regard to their risk appetite over the course of the month. On one hand, European investors increased their positions in money market products, but did also buy aggregated bond funds. On the other hand, they further reduced their exposure to mixed-assets 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 Lipper Global Classifications by estimated net sales for the first six months of 2024 also shows that European investors are somewhat in a risk-on mood with regard to their risk appetite since bond classifications are dominating the table of the best-selling Lipper Global Classifications.
As graph 6 shows, mixed-assets products faced the highest outflows over the course of the year 2024 so far, while bond products enjoyed the highest estimated net inflows. Given the overall trend it was not surprising that the table of the best-selling Lipper Global Classifications is dominated by bond and money markets classifications, while mixed-assets and equity classifications dominated the other side of the table.
Nevertheless, Equity Global (+€46.1 bn) was the best-selling Lipper global classification for the year so far. It was followed by Money Market EUR (+€39.1 bn), Bond Global USD (+€29.1 bn), Target Maturity Bond EUR 2020+ (+€27.1 bn), and Equity U.S. (+€26.9 bn).
Graph 10: Ten Best- and Worst Lipper Global Classifications by Estimated Net Sales, January 1 – June 30, 2024 (Euro Billions)
Source: LSEG Lipper
Given the current market environment, it was not surprising to see so many mixed-assets classifications on the opposite side of the table since European investors seem to be readjusting their portfolios to the new environment in the bond markets after the central banks around the globe started to end their interest rate hiking cycles and reduce their currently high interest rates over the course of 2024. Equity UK (-€15.4 bn) faced the highest outflows for the year so far. It was bettered by Equity Europe (-€12.6 bn), Mixed Asset EUR Flexible – Global (-€12.5 bn), Mixed Asset EUR Conservative – Global (-€12.5 bn), and Mixed Asset EUR Balanced – Global (-€10.9 bn).
As mentioned above, 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, 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
Fund Flows by Promoters, June 2024
BNP Paribas (+€10.4 bn) was the best-selling fund promoter in Europe for June, ahead of number two promoter BlackRock (+€9.3 bn), Goldman Sachs (+€7.1 bn), JPMorgan (+€5.0 bn), and DWS (+€3.8 bn). Given the product ranges of the 10-top promoters and the overall fund flow trends, it was not surprising to see that ETFs played a somewhat vital role for the positions of the leading fund promoters in Europe.
In addition, it is noteworthy that the high inflows into money market funds impact the positions of the best-selling fund promoters.
Graph 11: Ten Best-Selling Fund Promoters in Europe, June 2024 (Euro Millions)
Source: LSEG Lipper
Fund Flows by Promoters, Year to Date
BlackRock (+€50.8 bn) is the best-selling fund promoter in Europe over the course of the year so far, ahead of HSBC (+€18.5 bn), Vanguard (+€17.4 bn), DWS (+€16.0 bn), and State Street Global Advisors (+€12.3 bn). A view of the flow split by products over the year-to-date period gives an even clearer view on the importance of ETFs for the sales success of those promoters who have a respective product offering since BlackRock, Vanguard, DWS, State Street Global Advisors, and JPMorgan, all enjoyed higher inflows into ETFs than into their mutual funds.
In addition, one needs to bear in mind that the high inflows into money market products do also impact the positioning on the table of the best-selling fund promoters in Europe.
Graph 12: Ten Best-Selling Fund Promoters in Europe, January 1 – June 30, 2024 (Euro Billions)
Source: LSEG Lipper
Promoter Activity
Fund Launches, Liquidations, and Mergers
Within the current market environment, one would expect that the promoters of mutual funds and ETFs may hold back product launches and focus on the restructuring of their product ranges by liquidating or merging unprofitable products. Contrary to this expectation, the number of funds in the European fund industry increased over the course of Q1 2024 (+83), and Q2 2024 (+5). Generally speaking, it looks like the activity of European fund promoters in terms of fund launches, liquidations, and mergers is further in a business-as-usual mode, as 2024 may become the seventh year of growth since Lipper began to study these developments in 2012. Nevertheless, compared to previous quarters the overall number of fund launches, liquidations, and mergers has been below the respective quarterly averages.
The net increasing number of funds for 2024 occurred in a positive but still somewhat unstable and hard to predict market environment with low estimated net inflows into mutual funds, while the assets under management reached a near all-time high level, driven by the performance of the underlying markets. With regard to this environment, it was somewhat surprising that fund promoters showed a generally lower level of activity regarding the maintenance of their existing product ranges. In more detail, the number of fund launches (928), liquidations (450), and mergers (390) over the course of the first half of 2024 were below the long-term semi-annual averages (977, 599, and 475, respectively), while the number of fund launches (1,882) was slightly above the long-term four quarter average (1,874). Nevertheless, the growth trend for the overall number of funds available to investors in Europe was not offset by the by the lower activity of the fund promoter in Europe. The overall number of funds increased by 88 for 2024 so far.
One of the reasons for the mergers and liquidations at the fund level were restructurings of the general product offerings. For example, some fund promoters may merge funds with a similar investment objective to strengthen their product ranges. Another trend which we witnessed since 2022 was the launch of equity funds ranges in Ireland and a merger of existing products into these products. The shift from continental European domiciles to Ireland is caused by tax advantages from double taxation agreements between Ireland and the U.S. and possibly other regulatory arbitrage for UCITS products between the two jurisdictions. With regard to this, it is noteworthy that Ireland has surpassed France as second largest fund domicile, by the number of domiciled funds, over the course of Q2 2024.
Lower profitability because of a lack of assets under management might have been another reason why fund promoters merged or liquidated some funds. At the top-line level, the activity of fund promoters with regard to fund launches and liquidations seemed to be somewhat in line with the activity over other periods since the inception of this report, as we don’t witness any excess activity for fund launches, liquidations, or mergers. Since the implementation of new regulations, such as the EU Taxonomy or MiFID II does increase the cost for maintaining a fund, we expect that the trend of consolidation of small funds will continue over the course of 2024 and beyond.
Graph 13: Fund Launches, Liquidations, and Mergers – 2024 Year to Date
Source: LSEG Lipper
European fund promoters liquidated 450 funds over the course of H1 2024, while 390 funds were merged into other funds. In contrast, European fund promoters launched 928 funds. This means the overall number of primary funds in Europe increased by 88 products over the course of H1 2024.
A more detailed view shows that equity funds experienced the highest number of liquidations (184) and mergers (140) for the first half of 2024, while bond funds witnessed the highest number of launches (342). These numbers may indicate that the fund promoters in Europe want to take profit from the demand for bond funds in Europe, as investors expect that the central banks around the globe will start to lower the respective interest rates. With regard to the broader trends in financial markets and the trends in the European fund industry, it was not surprising equity funds showed the highest number of fund liquidations and mergers given that equities are the asset type with the highest number of products within the European fund industry. That said, equity funds had often also the highest number of fund launches in the past years. The underlying trends for the high activity in this sector might be the current market environment and the trends toward passive and/or ESG-related products. Especially the latter is also true for other asset classes.
The decreasing number of new mixed-assets products (-5) and the high number of fund mergers in this segment might be seen as a sign of market saturation and a reaction on the outflows from these products over the course of 2023. That said, even in years with estimated overall net inflows not all mixed-assets funds were able gather inflows since the flows into mixed-assets products were somewhat concentrated. That said, the concentration of fund flows toward a small number of funds may fuel fund launches and mergers since promoters may want launch products with similar investment objectives as the successful funds and support the assets under management of those funds by merging them with other products. This is because this move increases the assets under management of the new products and make them more attractive for investors.
Graph 14: Fund Launches, Liquidations, and Mergers – 2024 Year to Date by Asset Type
Source: LSEG Lipper
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 Lipper or LSEG.
