Monday Morning Memo: European Investors Buy into Money Market Products

European Fund-Flow Trends, October 2016

October showed a slightly positive picture for the European fund industry, with equity funds (-€3.5 bn) being the only asset type facing net outflows in the long-term funds segment during the month. The inflows on the other side of the table seemed to be somewhat shy. Mixed-asset funds (+€4.6 bn) were the best selling asset type of long-term funds for October, followed by bond funds (+€2.7 bn), “other” products (+€0.3 bn), real estate funds (+€0.2 bn), alternative UCITS products (+€0.1 bn), and commodity products (+€0.04 bn). These fund flows added to overall net inflows of €4.4 bn into long-term investment funds for October. Exchange-traded funds (ETFs) contributed €3.3 bn to these inflows. Even though these flow numbers seemed to indicate that European investors continued to stay cautious in October, the sector flows showed they further tended to chase yield.

Money Market Products

Money market products (+€29.4 bn) were by far the best selling asset type for October. While mutual funds investing in money market instruments enjoyed net inflows, ETFs investing in these instruments faced net outflows (-€0.3 bn).

This flow pattern led the overall fund flows to mutual funds in Europe to net inflows of €33.8 bn for October. With these overall inflows the European fund industry enjoyed net inflows of €237.6 bn over the course of 2016 so far.

Money Market Products by Sector

Money Market EUR (+€20.9 bn) was the best selling money market sector for October, followed by Money Market USD (+€5.3 bn) and Money Market GBP (+€3.2 bn). At the other end of the spectrum Money Market CHF (-€0.2 bn) suffered the highest net outflows, bettered somewhat by Money Market SEK (-€0.1 bn) and Money Market HUF (-€0.1 bn). Comparing this flow pattern with the flow pattern for September showed that European investors further increased their positions in the euro and bought further back into the British pound sterling as well as the U.S. dollar.

Exhibit 1. Estimated Net Sales by Asset Type, October 2016 (Euro Billions)

Source: Lipper

Fund Flows by Sectors

Within the segment of long-term mutual funds Absolute Return Other (+€2.1 bn) was the best selling sector, followed by Equity Emerging Markets Global (+€1.9 bn), Bond Emerging Markets in Hard Currencies (+€1.9 bn), and Bond Emerging Markets in Local Currencies (+€1.4 bn) as well as Bond Global (+€1.3 bn).

Exhibit 2. Ten Top Sectors, October 2016 (Euro Billions)

Source: Lipper

At the other end of the spectrum Equity US (-€3.5 bn) suffered once again the highest net outflows from long-term mutual funds, bettered by Bond EMU Government (-€2.2 bn) and Equity Europe (-€1.8 bn) as well as Equity UK (-€1.3 bn) and Bond EUR (-€1.1 bn).

Exhibit 3. Ten Bottom Sectors, October 2016 (Euro Billions)

Source: Lipper

Fund Flows by Markets

Single fund domicile flows (including those to money market products) showed a positive picture for October, with 21 of the 34 markets covered in this report showing net inflows and 13 showing net outflows. France (+€27.8 bn), driven by money market products, was by far the fund domicile with the highest net inflows, followed by Ireland (+€4.4 bn), the United Kingdom (+€2.1 bn), Germany (+€1.5 bn), and Spain (+€1.2 bn).On the other side of the table Luxembourg was the single fund domicile with the highest net outflows (-€4.1 bn), bettered by Italy (-€0.5 bn) and Belgium (-€0.3 bn).

Exhibit 4. Estimated Net Sales by Fund Domiciles, October 2016 (Euro Billions)

Source: Lipper

Within the equity sector, funds domiciled in Germany (+€1.4 bn) led the table for October, followed by those domiciled in Belgium (+€0.9 bn), France (+€0.7 bn), Sweden (+€0.3 bn), and Ireland (+€0.2 bn). Equity funds domiciled in Luxembourg (-€4.8 bn), the United Kingdom (-€2.0 bn), and Switzerland (-€0.4 bn) stood at the other end of the table.

For bond funds, products domiciled in Ireland (+€3.7 bn) led the table for October, followed by funds domiciled in Spain (+€0.9 bn), Denmark (+€0.8 bn), and Switzerland (+€0.7 bn) as well as France (+€0.3 bn). Meanwhile, Luxembourg (-€2.9 bn), Germany (-€0.4 bn), and Italy (-€0.3 bn) were the domiciles with the highest net outflows from bond funds.

With regard to mixed-asset products the United Kingdom (+€2.2 bn) was the domicile with the highest net inflows, followed by funds domiciled in Luxembourg (+€1.6 bn), Ireland (+€0.5 bn), Germany (+€0.4 bn), and Spain (+€0.2 bn). On the other side of the table funds domiciled in Belgium showed the highest net outflows   (-€0.2 bn), bettered somewhat by funds domiciled in Italy (-€0.2 bn) and Malta (-€0.1 bn).

Luxembourg (+€0.3 bn) was once again the domicile with the highest net inflows into alternatives for October, followed by the United Kingdom (+€0.2 bn), France (+€0.1 bn), and Spain (+€0.1 bn) as well as the Isle of Man (+€0.04 bn). Sweden (-€0.2 bn), bettered somewhat by Ireland (-€0.2 bn) and Belgium (-€0.1 bn), stood at the other end of the table.

Fund Flows by Promoters

Amundi, with net sales of €8.6 bn, was the best selling fund promoter for October overall, ahead of JP Morgan (+€3.9 bn) and Aviva (+€3.6 bn).

Exhibit 5. Ten Best Selling Promoters, October 2016 (Euro Billions)

Source: Lipper

Considering the single-asset bases, Candriam (+€0.9 bn) was the best selling promoter of bond funds for October, followed closely by Eurizon Capital (+€0.9 bn), BlackRock (+€0.9 bn), and Vanguard Group (+€0.7 bn) as well as AB (+€0.7 bn). Within the equity space BlackRock (+€2.2 bn) stood at the head of the table, followed by KBC (+€0.9 bn), Amundi (+€0.5 bn), and Vanguard Group (+€0.5 bn) as well as Fundsmith LLP (+€0.4 bn). M&G (+€0.9 bn) was the leading promoter of mixed-asset funds in Europe for October, followed by Aviva (+€0.7 bn), Flossbach von Storch (+€0.6 bn), and JP Morgan (+€0.5 bn) as well as Nordea (+€0.4 bn). La Francaise (+€0.2 bn) was the leading promoter of alternatives funds for the month, followed closely by BlackRock (+€0.2 bn), Mercer (+€0.2 bn), and Syquant Capital (+€0.2 bn) as well as Amundi (+€0.1 bn).

Best Selling Funds

The ten best selling long-term funds gathered at the share-class level total net inflows of €6.4 bn for October. The split of the ten best selling funds by asset type was not in line with the overall sales numbers, since bond funds (with five funds, +€2.9 bn) and mixed-asset funds (with two funds, +€1.8 bn) were the dominant asset types among the top-ten funds list, followed by equity funds (with three funds, +€1.7 bn).

Exhibit 6. Ten Best Selling Funds, October 2016 (Euro Millions)

Source: Lipper