November 25, 2019

Monday Morning Memo: European Investors Delve Deeper Into Bonds

by Detlef Glow.

European Fund-Flow Trends, October 2019

European investors bought further into bond funds in October despite the new quantitative easing by the European Central Bank (ECB) and interest rate cut by the Federal Reserve. The general inflows into mutual funds come despite ongoing concerns about declining company earnings and the possible effects of the trade war between the U.S. and China. As a result, October was the eighth month during which long-term mutual funds posted net inflows this year. Bond funds (+€23.0 bn) were the best-selling asset type in the segment of long-term mutual funds, followed by mixed-assets funds (+€9.8 bn), equity funds (+€3.3 bn), commodity funds (+€0.6 bn), and ‘other’ funds (+€0.3 bn). Conversely, real estate funds (-€0.3 bn) and alternative UCITS funds (-€3.4 bn) faced outflows.

These fund flows added up to overall net inflows of €33.3 bn into long-term investment funds for October. ETFs contributed inflows of €11.1 bn to these flows.

Money Market Products

The current market environment led European investors to sell money market products. As a result, money market funds were again the worst-selling asset type overall, witnessing net outflows of €5.0 bn for October. ETFs investing in money market instruments contributed net outflows of €0.5 bn to the total, in line with their actively managed peers.

This flow pattern led to overall net inflows of €28.2 bn for October, and inflows of €219.4 bn for mutual funds in Europe to date this year.

Money Market Products by Sector

Money Market USD (+€7.9 bn) was the best-selling money market sector, followed by Money Market EUR Leveraged (+€0.4 bn) and Money Market AUD (+€0.2 bn). At the other end of the spectrum, Money Market EUR (-€8.3 bn) suffered the highest net outflows overall, bettered by Money Market GBP (-€4.8 bn) and Money Market Global (-€0.2 bn).

Comparing this flow pattern with the flow pattern for September revealed that European investors built up their positions in the U.S. dollar while further selling money market EUR and reducing money market GBP to increase their positions in risky assets. In conjunction with the asset allocation decisions of portfolio managers, these shifts might have also been caused by corporate actions such as cash dividends or cash payments since money market funds are also used by corporations as replacements for cash accounts.

Graph 1: Estimated Net Sales by Asset Type, October 2019 (Euro Billions)

European fund market review, October 2019

Source: Lipper from Refinitiv

Fund Flows by Sectors

Opposite to the general trend in alternative UCITS funds, Absolute Return Bond EUR (+€5.6 bn) was the best-selling sector in the segment of long-term mutual funds, followed by Bond Global USD (+€4.7 bn). Equity Global (+€4.1 bn) was the third best-selling long-term sector, followed by Mixed Asset EUR Balanced – Global (+€3.9 bn) and Bond USD (+€2.9 bn).

Graph 2: Ten Top Sectors, October 2019 (Euro Billions)

Source: Lipper from Refinitiv

At the other end of the spectrum, Equity US (-€2.9 bn) suffered the highest net outflows in the segment of long-term funds, bettered by Bond EUR Short Term (-€1.8 bn), Alternative Equity Market Neutral (-€1.4 bn), Equity Germany (-€1.1 bn), and Target Maturity Bond EUR 2020+ (-€0.9 bn).

Graph 3: Ten Bottom Sectors, October 2019 (Euro Billions)

Source: Lipper from Refinitiv

Fund Flows by Markets (Fund Domiciles)

Single-fund domicile flows (including those to money market products) showed, in general, a mixed picture for October. Seventeen of the 34 markets covered in this report showed net inflows and 17 showed net outflows. France (+€10.7 bn) was the fund domicile with the highest net inflows, followed by Luxembourg (+€10.2 bn), Ireland (+€6.6 bn), Germany (+€2.6 bn), and Switzerland (+€1.1 bn). On the other side of the table, the Netherlands (-€3.3 bn) was the fund domicile with the highest outflows, bettered by Belgium (-€1.8 bn) and the U.K. (-€0.5 bn). It is noteworthy that the fund flows for France (+€7.3 bn), Luxembourg (-€6.5 bn), Ireland (-€4.6 bn), and Belgium (-€1.6 bn) were impacted by flows in and out of money market products.

Graph 4: Estimated Net Sales by Fund Domiciles, October 2019 (Euro Billions)

European fund market review, October 2019

Source: Lipper from Refinitiv

Within the bond sector, funds domiciled in Luxembourg (+€8.7 bn) led the table, followed by Ireland (+€8.4 bn), France (+€4.6 bn), Sweden (+€0.9 bn), and Spain (+€0.5 bn). Bond funds domiciled in Germany (-€0.6 bn), Denmark (-€0.5 bn), and Norway (-€0.3 bn) were at the other end of the table.

For equity funds, products domiciled in Luxembourg (+€6.6 bn) led the table for October, followed by funds domiciled in Ireland (+€2.3 bn), Switzerland (+€0.5 bn), Guernsey (+€0.4 bn), and Norway (+€0.3 bn). Meanwhile, the Netherlands (-€3.3 bn), France (-€2.1 bn), and the U.K. (-€0.7 bn) were the domiciles with the highest net outflows from equity funds.

Regarding mixed-assets products, Germany (+€2.8 bn) was the domicile with the highest net inflows, followed by funds domiciled in Luxembourg (+€2.3 bn), the U.K. (+€1.1 bn), France (+€1.0 bn), and Italy (+€0.8 bn). In contrast, Jersey (-€0.1 bn), Guernsey (-€0.03 bn), and Slovakia (-€0.02 bn) were the domiciles with the highest net outflows from mixed-assets funds.

France (+€0.3 bn) was the domicile with the highest net inflows into alternative UCITS funds for October, followed by Spain (+€0.2 bn) and Denmark (+€0.02 bn). Meanwhile, the U.K. (-€1.3 bn), Luxembourg (-€1.3 bn), and Italy (-€0.9 bn) were at the other end of the table.

Fund Flows by Promoters

Amundi was the best-selling fund promoter for October overall, with net sales of €6.3 bn, ahead of BlackRock (+€3.7 bn) and Vanguard Group (+€3.1 bn).

Table 1: Ten Best-Selling Promoters, October 2019 (Euro Billions)

European fund market review, October 2019

Source: Lipper from Refinitiv

Considering the single-asset classes, Amundi (+€4.3 bn) was the best-selling promoter of bond funds, followed by BlackRock (+€3.1 bn), PIMCO (+€2.4 bn), AB (+€1.6 bn), and Vanguard Group (+€1.1 bn).

Within the equity space, BlackRock (+€2.4 bn) led the table, followed by UBS (+€1.9 bn), Vanguard Group (+€1.4 bn), Pictet (+€1.0 bn), and Aviva (+€0.9 bn).

CPR Asset Management (+€1.2 bn) was the leading promoter of mixed-assets funds in Europe, followed by UniCredit (+€1.0 bn), Amundi (+€0.8 bn), JP Morgan (+€0.8 bn), and Danske (+€0.6 bn).

Mercer (+€0.6 bn) was the leading promoter of alternative UCITS funds for the month, followed by Credit Suisse Group (+€0.3 bn), GAM (+€0.2 bn), La Caixa (+€0.2 bn), and DWS Group (+€0.2 bn).

Best-Selling Funds

The 10 best-selling long-term funds, gathered at the share class level, amounted to €7.7 bn of estimated net inflows for October. The general fund-flows trend for the 10 best-selling funds was not in line with the overall fund flows trend in Europe, as equity funds dominated the ranking of the asset types with regard to the 10 best-selling funds (+€5.5 bn), followed by mixed-assets funds (+€2.2 bn).

Table 2: Ten Best-Selling Long-Term Funds, October 2019 (Euro Millions)

Source: Lipper from Refinitiv

The views expressed are the views of the author, not necessarily those of Lipper or Refinitiv.

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