The European fund industry enjoyed inflows over the course of September 2024.
These inflows occurred in a positive market environment. Equity markets were rising further despite the high valuations of the market leaders. This might also be the reason why investors are somewhat nervous and reacting quite fast on any news that may impact the current market environment negatively. An example of this was the short-term market turmoil in August when investors had to unwind their yen-based carry trades after the yen increased sharply in value compared to the U.S. dollar.
This is not only true for economic news, as the increasing 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 these tensions have the potential to drive the price for oil up. In addition, a number of shipping companies these days avoid the passage of the Suez channel. It is, therefore, to be expected that prolonged delivery times will cause some tensions for the still vulnerable delivery chains.
Market sentiment was further driven by central bank decisions, as all eyes were on the U.S. Federal Reserve before its September meeting. As investors hoped, the U.S. Fed finally cut the Fed funds rate somewhat surprisingly by 50 basis points. Since this interest rate cut was higher than most market observers and investors expected, the decision let to a discussion of whether the Fed is expecting a recession in the U.S. or if the central bank is really just comfortable with development of inflation and the economy. On the other sides of the pond, the Bank of England (BoE) and the Bank of Japan (BoJ) left their interest rates unchanged. While the BoE was focusing on the still high inflation in the U.K., the BoJ had a stable yen in focus. With regard to this, the statements from the Fed and other central banks might be the driver for estimated net flows in bond and money market ETFs.
In addition to this, it looks like European investors are also adapting their portfolios to the slowly normalizing yield curves. But even if the yield curves return to a normal shape, this does not mean that there is no recession possible in the major economies around the globe, since some major economies do lack economic growth and may need lower interest rates as stimulus. Nevertheless, some major equity indices reached new all-time highs over the course of the month. Despite these headwinds, the positive effects of lower interest rates seem to be more important for investors than the current state of some economies.
Mutual funds (+€17.2 bn) and ETFs (+€22.3 bn) enjoyed inflows for the month. This flow pattern led to overall estimated net inflows of €39.9 bn over the course of September 2024.
Asset Type Flows September 2024
In more detail, bond funds (+€23.8 bn) were the best-selling asset type overall for September 2024. The category was followed by money market funds (+€14.6 bn), equity funds (+€4.5 bn), commodities funds (+€0.5 bn), and alternatives funds (+€0.1 bn), while ”other” funds (-€0.06 bn), real estate funds (-€1.8 bn), and mixed-assets funds (-€2,1 bn) faced outflows.
Graph 1: Estimated Net Flows by Asset and Product Type – September 2024 (in bn EUR)
Source: LSEG Lipper
Asset Type Flows Year to Date
The flow pattern for September drove the estimated overall net flows in the European fund industry up to €395.7 bn for the year 2024 so far.
On closer inspection, mutual funds (+€228.5 bn) and ETFs (+€167.2 bn) enjoyed inflows over the course of 2024. These inflows within the 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 still somewhat 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 anticipated the ending of the interest hiking cycle of central banks around the globe since it is expected that the U.S. Federal Reserve will follow the European Central Bank (ECB) and the Bank of England (BoE) and start to decrease interest rates at the end of the month.
Overall, long-term investment products (+€199.5 bn) and money market funds (+€196.2 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 and money market funds were dominated by mutual funds.
Taking a closer look, bond funds (+€225.9 bn) were the asset type with the highest estimated net inflows overall for 2024 so far. It is followed by money market funds (+€196.2 bn), equity funds (+€49.0 bn), and commodity funds (+€0.9 bn). On the other side of the table, “other” funds (-€0.2 bn), alternatives funds (-€6.8 bn), real estate funds (-€10.5 bn), and mixed-assets funds (-€58.8 bn) faced outflows for the year so far.
Graph 2: Estimated Net Sales by Asset and Product Type, January 1 – September 30, 2024 (Euro Billions)
Source: LSEG Lipper
The high outflows from mixed-assets funds might be caused by investors who used fixed-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 still somewhat 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 have normalized.
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 (+€167.2 bn) were outpacing the flows into passive index mutual funds (+€35.6 bn) by a large margin. In line with this, actively managed long-term mutual funds had inflows of €13.0 bn for the first nine months of 2024.
Graph 3: Estimated Net Flows by Management Approach and Product Type (January 1 – September 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, September 2024
Given the general fund flows trend in Europe for September, it was somewhat surprising that Money Market USD (+€17.9 bn) dominated the table of the 10 best-selling peer groups by estimated net flows for September. The classification was followed by Equity Global (+€9.9 bn), Bond Global USD (+€6.0 bn), Equity U.S. (+€3.0 bn), and Bond EUR Corporates (+€2.6 bn).
Graph 4: Ten Best- and Worst Lipper Global Classifications by Estimated Net Sales, September 2024 (Euro Billions)
Source: LSEG Lipper
On the other side of the table, Money Market EUR (-€6.3 bn) faced the highest estimated net outflows for September, bettered by Equity U.K. (-€4.8 bn) and Bond GBP Corporates (-€3.0 bn).
A closer look at the best and worst Lipper Global Classifications by estimated net sales for September shows that European investors are in a mixed mood with regard to their risk appetite over the course of the month. On one hand, European investors increased their positions in bonds and equities, but also in money market classifications. On the other hand, they reduced their exposure to the U.K.
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 nine months of 2024 also shows that European investors are somewhat in a mixed mood with regard to their risk appetite since bond and money market classifications are dominating 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 2024 so far, while bond and money market 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 market classifications, while equity and mixed-assets classifications dominated the other side of the table.
Nevertheless, Money Market EUR (+€121.6 bn) was the best-selling Lipper global classification for the year so far. It was followed by Equity Global (+€74.8 bn), Equity U.S. (+€46.3 bn), Bond Global USD (+€41.1 bn), and Target Maturity Bond EUR 2020+ (+€34.3 bn).
Graph 5: Ten Best- and Worst Lipper Global Classifications by Estimated Net Sales, January 1 – September 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. The same might be somewhat true for equity classifications since investors adapt their portfolios to a new regime of lower economic growth in some regions/countries around the globe. Equity U.K. (-€26.4 bn) faced the highest outflows for the year so far. It was bettered by Mixed Asset EUR Flexible – Global (-€15.7 bn), Mixed Asset EUR Conservative – Global (-€15.4 bn), Equity Europe (-€13.3 bn), and Equity Asia Pacific ex Japan (-€12.3 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 still somewhat inverted, which means that money market instruments offer a higher yield than medium- or long-term bonds.
Fund Flows by Promoters, September 2024
BlackRock (+€10.2 bn) was the best-selling fund promoter in Europe for September, ahead of number two promoter DWS Group (+€5.8 bn), State Street Global Advisors (+€5.1 bn), Pimco (+€3.7 bn), and Goldman Sachs (+€3.5 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 vital role for the positions of the leading fund promoters in Europe.
Graph 6: Ten Best-Selling Fund Promoters in Europe, September 2024 (Euro Millions)
Source: LSEG Lipper
Fund Flows by Promoters, Year to Date
BlackRock (+€92.1 bn) is the best-selling fund promoter in Europe over the course of the year so far, ahead of HSBC (+€29.2 bn), DWS Group (+€28.7 bn), Vanguard (+€28.1 bn), and State Street Global Advisors (+€22.0 bn).
A view of the flow split by products over the year-to-date period gives an even clearer view of 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.
Graph 7: Ten Best-Selling Fund Promoters in Europe, January 1 – September 30, 2024 (Euro Billions)
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 LSEG Lipper or LSEG.
