by Detlef Glow.
Looking at the headline figures, first half 2018 could be considered a business-as-usual period for the European fund industry, since the assets under management (+€10.7 tr) increased in the first and second quarters of the year. But a closer look at the underlying trends shows that the recent geopolitical uncertainty and discussions of possible new tariffs in the U.S., which may result in a trade war, caused investors to change their asset allocations.
Assets Under Management in the European Fund Industry
The assets under management in the European fund industry increased from €10.4 tr to €10.7 tr over first half 2018. This increase was mainly driven by the performance of the underlying markets (+€178.1 bn), while net sales contributed €59.8 bn.
Since ETFs have become an important part of the European fund industry, it is essential to review that market segment separately to get a better picture of the underlying trends in the market. That said, we include the numbers for ETFs in the overall numbers for the European fund industry.
The European ETF industry enjoyed further increasing popularity with all kinds of investors over first half 2018. This popularity was seen in the net inflows attracted by ETFs, even in May and June when we witnessed overall net outflows for mutual funds. Compared to the end of December 2017, the assets under management increased from €656.8 bn to €660.4 bn at the end of June 2018. In line with their actively managed peers, growth in the European ETF segment was mainly driven by net sales (+€22.8 bn), while the performance of the underlying markets contributed a negative €19.2 bn.
Graph 1: Assets Under Management (Euro Billions) in the European Fund Industry by Product Type, June 30, 2018
With regard to the overall number of funds registered for sale in Europe, it was not surprising that equity funds (€3.9 tr) were the asset type with the highest assets under management, followed by bond funds (€2.6 tr), mixed-asset products (€1.8 tr), money market funds (€1.2 tr), alternative UCITS funds (€0.7 tr), real estate funds (€0.2 tr), and “other” products (€0.2 tr) as well as commodity funds (€0.05 tr).
Graph 2: Market Share by Asset Type, June 30, 2018
European Fund-Flow Trends, H1-2018
Generally speaking, first half 2018 was split into two different environments. While first quarter 2018 seemed to be a good quarter for the European fund industry, since fund promoters enjoyed healthy net inflows (+€81.5 bn) into mutual funds, the second quarter was marked by net outflows for May and June. Despite the outflows for second quarter 2018, the European fund industry still enjoyed net inflows of €59.8 bn for first half 2018.
Pulling out money market funds from this number shows that the flows into long-term mutual funds (+€91.1 bn) were in line with the flows during other half years. With regard to these numbers, first half 2018 could be considered a good period for the promoters of ETFs, even though the flows were not as strong as in the record year 2017. The overall net sales of ETFs equalled 38.13% of the overall net inflows into the European ETF segment.
Graph 3: Estimated Net Flows (Euro Billions) in the European Mutual Fund Industry by Product Type, H1-2018
Fund Flows Into Long-Term Mutual Funds
A more detailed view by asset type unveils that all asset types with the exception of bond funds (-€16.3 bn) enjoyed net inflows over the course of first half 2018. Given that investors were concerned about a possible trade war and the general geopolitical situation, it was surprising that equity funds (+€30.4 bn) still enjoyed net inflows. This flow number was driven by the net inflows for first quarter 2018. Given the overall market sentiment, it was no surprise that mixed-asset funds(+€32.3 bn) were the best selling asset type overall in Europe, while “other” products (+€14.5 bn) and alternative UCITS funds (+€13.8 bn) as well as commodity funds (+€4.8 bn) and real estate funds (+€2.8 bn) also enjoyed net inflows. These fund flows added up to overall net inflows of €82.5 bn into long-term investment funds for first half 2018.
With regard to ETFs, equity ETFs were the best selling asset type in this market segment (+€16.3 bn), followed by bond ETFs (+€4.2 bn) and commodity products (+€2.1 bn) as well as alternative UCITS ETFs (+€0.04 bn) and mixed-asset ETFs (+€0.03 bn), while “other” ETFs (-€0.3 bn) faced net outflows.
Graph 4: Estimated Net Sales (Euro Billions) by Asset and Product Type, H1-2018
Fund Flows Into Money Market Products
Money market products (-€22.6 bn) were the asset type with the highest overall net outflows for first half 2018. Mutual funds investing in money market instruments faced net outflows of €22.9 bn, while their passive peers (ETFs) had net inflows of €0.3 bn.
This flow pattern led the overall fund flows to mutual funds in Europe to net inflows of €59.8 bn for first half 2018.
Money Market Products by Sector
Money Market PLN (+€1.8 bn) was the best selling money market sector for first half 2018, followed by Money Market Global (+€0.9 bn) and Money Market SEK (+€0.8 bn). At the other end of the spectrum Money Market GBP (-€11.3 bn) suffered the highest net outflows in the money market segment, bettered by Money Market EUR (-€9.6 bn) and Money Market USD (-€3.6 bn).
Fund Flows Into Long-Term Mutual Funds by Sectors
Within the segment of long-term mutual funds Equity Global (+€20.6 bn) was the best selling sector, followed by Unclassified funds (+€18.6 bn), Equity US (+€9.8 bn), and Equity Sector Information Technology (+€6.6 bn) as well as Alternative Global Macro (+€6.1 bn).
Graph 5: The Ten Best and Worst Selling Sectors Overall (Euro Billions), H1-2018
At the other end of the spectrum Bond USD High Yield (-€12.3 bn) suffered the highest net outflows from long-term mutual funds, bettered by Bond EUR Corporates (-€8.6 bn) and Absolute Return EUR Medium (-€7.7 bn) as well as Bond Global High Yield (-€6.7 bn) and Equity Europe (-€6.4 bn).
Assets Under Management by Promoters
A closer look at the assets under management in the European mutual fund industry shows that BlackRock (€769.4 bn) was by far the largest fund promoter in Europe, followed by Amundi (€367.9 bn) and JP Morgan (€310.0 bn) as well as UBS (€297.8 bn) and Deutsche Bank (€285.4 bn). Looking at these numbers, one needs to take into account that Amundi increased its assets under management with the acquisition of Pioneer Investments in 2017.
Graph 6: The 20 Largest Promoters in Europe by Assets Under Management (Euro Billions), June 30, 2018
Fund Flows by Promoters
Aviva, with net sales of €17.7 bn, was the best selling fund promoter for first half 2018 overall, ahead of BlackRock (+€16.7 bn) and UBS (+€10.7 bn). It is noteworthy that the overall net inflows for BlackRock contained €7.5 bn of inflows into money market funds, while none of the other top-three promoters had net inflows into money market funds. It is remarkable that ETF flows had only a low market share for first half 2018, looking at the fund flows of the 20 top fund promoters in Europe.
Graph 7: The 20 Best Selling Promoters (Euro Billions), H1-2018
Considering the single-asset bases, BlackRock (+€5.1 bn) was the best selling promoter of bond funds for first half 2018, followed by Ashmore (+€2.5 bn), Carmignac Gestion (+€2.5 bn), and Vanguard Group (+€2.1 bn) as well as Deutsche Bank (+€2.0 bn).
Within the equity space UBS (+€7.6 bn) stood at the head of the table, followed by Morgan Stanley (+€5.5 bn), Baillie Gifford (+€5.3 bn), and Vanguard Group (+€3.0 bn) as well as Goldman Sachs (+€2.8 bn).
Allianz (+€6.2 bn) was the leading promoter of mixed-asset funds in Europe for first half 2018, followed by Eurizon Capital (+€5.1 bn), JP Morgan (+€4.4 bn), and Amundi (+€3.8 bn) as well as Union Investment (+€3.6 bn).
H2O Asset Management (+€6.1 bn) was the leading promoter of alternatives funds for first half 2018, followed by Old Mutual (+€3.0 bn), BlackRock (+€1.6 bn), and Legg Mason (+€1.6 bn) as well as Man Investments (+€1.3 bn).
Promoter Activity–Fund Launches, Liquidations, and Mergers
After several strong years with net inflows for the European fund industry, promoter activity with regard to fund launches, liquidations, and mergers may have started to change in pattern from consolidation to an increase in the number of products. The number of funds available to investors in Europe increased by 52 for first half 2018. The underlying numbers may indicate a new trend in Europe: the number of mergers and liquidations went down in a quarter-by-quarter comparison, while the number of newly launched funds increased. That said, the main reason for the mergers and liquidations at the fund level did not change. Fund promoters further restructured their general product offerings; i.e., some fund promoters merged funds with a similar investment objective to strengthen their product ranges. Lower profitability because of the lack of assets under management could have been another reason fund promoters merged or liquidated some funds.
Graph 8: Fund Launches, Liquidations, and Mergers, H1-2018
European fund promoters liquidated 494 funds over the course of first half 2018, while 478 funds were merged into other funds. In contrast, European fund promoters launched 1,024 funds. This meant the European fund market grew by 52 funds over the course of first half 2018.
A more detailed view shows that equity funds had the highest number of mergers (168) and liquidations (152), while mixed-asset funds had the highest number of fund launches (341). With regard to fund flows in Europe, it was not surprising that mixed-asset funds showed the highest number of fund launches, since this asset type was in the favor of European investors, and fund promoters were trying to grab their market share by launching so-called multi-asset funds. The rather low number of fund mergers in this segment may have signalled that fund promoters were cleaning up their product ranges with regard to “old-fashioned” mixed-asset funds; they were merging old funds with new multi-asset products to increase the assets under management of the new products in order to make them more attractive to investors.
Graph 9: Fund Launches, Liquidations, and Mergers by Asset Type, H1-2018