View on the Mutual Fund Market in Europe
The chart below breaks down the European fund market by asset class as of the end of Q1 2016. Equity funds dominated the scene with a market share of 37% of the funds available for sale in Europe, followed by mixed-asset funds (27%), bond funds (21%), and money market funds (4%). The remaining 11% of “other” funds were real estate funds, commodity funds, guaranteed funds, and funds of hedge funds.
Figure 1 Market Share of Mutual Funds Registered for Sale in Europe by Asset Type as of the End of March 2016
Source: Lipper
With 477 launched products, in Q1 2016 we saw a positive trend compared with the numbers from Q1 2015. While the number of liquidations declined and mergers went up, the net decrease of available instruments in the market was 79 products, while there was a net negative number of 182 instruments removed from the market during Q1 2015.
Figure 2 Overview of New Fund Launches, Mergers, and Closures of Investment Funds, Q1 2012–Q1 2016
Source: Lipper
Launches, Mergers, and Liquidations over the Past Five Years
With 477 newly launched products for Q1 2016, we noticed a higher number of newly issued products than for Q1 2015 (+20%) but lower numbers (-15%) compared with Q4 2015. The number of liquidations (313) went down 20% compared with Q1 2015, while compared to Q4 2015 the decrease was even more significant (-30%). The number of mergers (243) went up 25%, comparing Q1 2016 with Q1 2015. Comparing the number for Q1 2016 with Q4 2015 the increase was much smaller (+6.5%).
Figure 3 Launches, Mergers, and Closures of Investment Funds, Q1 2012-Q1 2016
Source: Lipper
The net size of the European fund universe decreased since Q1 2012. The net decrease of 79 products for Q1 2016 was the lowest net decrease in the five-year observation period and marked the longest period of consecutive decreasing numbers of net changes in the registered-for-sale numbers.
Figure 4 Net Change in Number of Funds Registered for Sale in Europe, Q1 2012-Q1 2016
Source: Lipper
Changes in European Fund Universe Asset Classes, Q1 2016
Q1 2016 witnessed the launch of 477 funds: 150 equity funds, 129 bond funds, 145 mixed-asset funds, 46 “other” funds, and 7 money market funds. During the same period 313 funds were liquidated: 123 equity funds, 51 bond funds, 70 mixed-asset funds, 58 “other” funds, and 11 money market funds. In addition, there were 243 funds that were merged during the observation period. These funds were split into 67 equity funds, 72 bond funds, 61 mixed-asset funds, 22 “other” funds, and 21 money market funds.
Figure 5 Overview of New Fund Launches, Mergers, and Closures, January 1, 2016-March 31, 2016
Source: Lipper
The net changes for Q1 2016 showed negative totals for equities (-40 products net), money market (-25 products net), and other funds (-34 products net), while mixed-asset products (+14 products net) and bond funds (+6 products net) saw an increase in the products available to European investors.
The high activity with regard to fund launches in the mixed-asset sector might not be surprising, since this sector also contains multi-asset products. These products have been in the favour of investors for more than three years now, and fund promoters want to participate from this trend by launching new products. Especially in the overall low-interest-rate environment, mixed- and multi-asset products as well as alternative UCITS seem to be the preferred asset classes for European investors.
Outlook
Since the European fund industry enjoyed increasing assets under management after the euro debt crisis of 2011, it seems pressure on the industry with regard to profitability has loosened a bit, and the industry launched a high number of new funds during Q1 2016. The overall numbers of Q1 2016 might also be seen as a sign European fund promoters have successfully cleaned up their product ranges, since the number of fund closures and mergers went down. These activities have resulted in a third consecutive quarter of falling numbers of net closures. This may also mean we might see an increasing number of funds available to investors in Europe in the near future. One of the drivers for this might be the trend toward alternative UCITS, which already have seen high inflows over the past few years and are one of the top-selling asset types for the year so far. Even though there are already a number of alternative UCITS available for European investors, there is a lot of space for new products in this area, especially since a number of large promoters are not active in this space at the moment.
Additionally, investors might also request new funds in the bond segment, since possible rate hikes by the leading central banks may lead to even higher demand with regard to so-called “all-weather” funds that are able to participate in all bond segments and have the ability to hedge out the duration or are able to hold a net-short duration to participate from increasing rates.
That said, a positive market environment would be the key ingredient for a return to growth, since fund promoters are rather cautious about launching new products in rough markets, given that investors may shy away from funds during these times. One can conclude that the numbers for Q1 2016 might have been much better if investors hadn’t been faced with the turmoil in the equity markets during January and February.
Another driver for growth in the number of available products might be the exchange-traded fund (ETF) industry, since ETFs have become a common investment vehicle. Even though there are already more than 2,100 products (all share classes) available, the increasing popularity of these products may raise demand for additional products, especially since there are still some parts of the investment landscape that are not yet covered by ETFs.
The views expressed are the views of the author, not necessarily those of Lipper.
