The coronavirus pandemic hit the European fund industry with declining markets and estimated net outflows of €125.9 bn in the first quarter of 2020. This trend reversed over the course of the second quarter as central banks and governments around the globe started quantitative easing programs and economic relief packages to cushion the economic drawdowns caused by the spread of the coronavirus and the lockdowns of economies around the globe. The measures taken led to a rebound of the equity markets accompanied by falling interest rates. The return to somewhat normal market circumstances led investors to buy back into mutual funds and ETFs. As a result, the European fund industry enjoyed inflows of €123.0 bn over the course of the first half of 2020. Taking all of this into account, H1 2020 was, despite the inflows, a tough period for the European fund industry.
Assets Under Management in the European Fund Industry
Assets under management in the European fund industry decreased from €12.3 tr (December 31, 2019) to €11.7 tr (June 30, 2020) over the course of H1 2020. This decrease was mainly driven by the performance of the underlying markets (-€706.4 bn), while net sales contributed estimated net inflows of €123.0 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, although the numbers for ETFs are included in the overall numbers of the European fund industry.
The European ETF industry enjoyed a further increase in popularity with all kinds of investors over the course of 2019, and as a result, ETFs enjoyed inflows (+€17.4 bn) for H1 2020. Given the general market environment, it was not surprising to see a decrease in assets under management from €870.0 bn at the end of December 2019 to €830.0 bn at the end of H1 2020 due to the negative impact from the underlying markets (-€57.4 bn).
Graph 1: Assets Under Management in the European Fund Industry by Product Type (Euro Billions)
Source: Refinitiv Lipper
For funds overall, it was not surprising that equity funds (€4.2 tr) were the asset type with the highest assets under management, followed by bond funds (€3.0 tr), mixed-assets products (€2.0 tr), money market funds (€1.4 tr), alternative UCITS funds (€0.7 tr), real estate funds (€0.3 tr), “other” products (€0.1 tr), and commodities funds (€0.1 tr).
Graph 2: Market Share by Asset Type (June 31, 2020)
Source: Refinitiv Lipper
European Fund Flow Trends H1 2020
Generally speaking, H1 2020 was a tough period for the European fund management industry even as mutual funds and ETFs enjoyed overall inflows of €123.0 bn.
Graph 3: Estimated Net Flows in the European Mutual Fund Industry (Euro Billions)
Source: Refinitiv Lipper
That said, it was not surprising that ETFs (+€17.4) and mutual funds (+€105.6 bn) enjoyed inflows.
Fund Flows into Long-Term Mutual Funds
A more detailed view by asset type reveals that not all of them had inflows over the course of H1 2020. Bond funds (+€17.6 bn) was the best-selling asset type, followed by commodities funds (+€9.7 bn), real estate funds (+€5.6 bn), and equity funds (+€0.8 bn). On the other side of the table alternative UCITS funds (-€60.0 bn) faced the highest outflows, bettered by mixed-assets funds (-€2.0 bn) and ”other” funds (-€1.2 bn). These fund flows added up to overall net inflows of €123.0 bn into long-term investment funds for the first six months of the year. These flows indicate that European investors returned to risk-on mode over the course of the second quarter of 2020.
The European ETF segment showed somewhat the same dynamics with regard to estimated net inflows since bond ETFs also posted the highest net inflows (+€16.4 bn) for H1 2020, followed by commodities ETFs (+€1.0 bn), mixed-assets ETFs (+€0.2 bn), and “other” ETFs (+€0.1 bn). On the other side of the table, equity ETFs (-€1.4 bn) faced the highest outflows within the ETF segment, bettered by alternative UCITS ETFs (-€0.1 bn). Even as European investors showed a preference for ETFs in 2019, the flows over the course of the first half of 2020 may indicate that they are using them as trading instruments since liquidity and transparency are two of the product features of ETFs.
Graph 4: Estimated Net Sales by Asset Type, H1 2020 (Euro Billions)
Source: Refinitiv Lipper
Fund Flows into Money Market Products
Money market products were the best-selling asset type in Europe over the first half of 2020 (+€152.5 bn) even as European investors bought long-term mutual funds in a risk-on move. Buying money market funds can be seen as a logical step in an uncertain market environment since these products are considered to be safe-haven products. Therefore, these fund flow trends show that European investors are still not sure about the economic outcome from the coronavirus crisis. In line with their actively managed peers, money market ETFs enjoyed inflows of €1.1 bn.
This flow pattern led to estimated net inflows of €123.0 bn into mutual funds and ETFs in Europe for the year to date.
Money Market Products by Sector
Money Market USD (+€61.3 bn), followed by Money Market EUR (+€47.0 bn) and Money Market GBP (+€42.5 bn) were the three best-selling money market sectors for H1 2020. At the other end of the spectrum, Money Market PLN (-€2.0 bn) suffered the highest net outflows in the money market segment, bettered by Money Market NOK (-€0.4 bn) and Money Market EUR Leveraged (-€0.4 bn).
Fund Flows by Sectors
Equity Global (+€35.0 bn) was once again the best-selling sector within the segment of long-term mutual funds, followed by Bond Global Corporates USD (+€16.0 bn), Equity Sector Information Technology (+€12.4 bn), Bond USD (+€16.0 bn), and Bond EUR Corporates (+€11.9 bn).
Graph 5: The 10 Best- and Worst-Selling Sectors for H1 2020 (Euro Billions)
Source: Refinitiv Lipper
At the other end of the spectrum, Equity U.S. (-€18.6 bn) suffered the highest net outflows from long-term mutual funds, bettered somewhat by Bond EUR Short Term (-€16.3 bn), Bond Emerging Markets Global in Local Currencies (-€12.4 bn), Equity Emerging Markets Global (-€11.3 bn), and Equity Eurozone (-€9.2 bn).
Assets Under Management by Promoters
A closer look at the assets under management in the European mutual fund industry shows that BlackRock (€945.6 bn) was by far the largest fund promoter in Europe, followed by JP Morgan (€391. bn), Amundi (€381.9 bn), UBS (€349.8 bn), and DWS Group (€314.9 bn).
Graph 6: The 20 Largest Promoters by Assets Under Management in Europe H1 2020 (Euro Billions)
Source: Refinitiv Lipper
Fund Flows by Promoters
JP Morgan, with net sales of €52.7 bn, was the best-selling fund promoter for H1 2020 overall, well ahead of BlackRock (+€36.4 bn) and Goldman Sachs (+€21.2 bn). It is noteworthy that the overall flows of JP Morgan (+€43.7 bn) and Goldman Sachs (€23.3 bn) were driven by money market products.
Graph 7: Twenty Best-Selling Promoters H1 2020 (Euro Billions)
Source: Refinitiv Lipper
Considering the single-asset bases, UBS (+€11.1 bn) was the best-selling promoter of bond funds for H1 2020, followed by BlackRock (+€8.6 bn), JP Morgan (+€8.0 bn), Credit Suisse Group (+€4.0 bn), and Mercer (+€3.6 bn).
Within the equity space, BlackRock (+€11.2 bn) stood at the head of the table, followed by Morgan Stanley (+€6.5 bn), Vanguard Group (+€6.3 bn), Pictet (+€4.7 bn), and Credit Suisse Group (+€3.3 bn).
ING (+€9.1 bn) was the leading promoter of mixed-assets funds in Europe for H1 2020, followed by Flossbach von Storch (+€3.7 bn), Vanguard Group (+€2.9 bn), KBC (+€2.2 bn), and Union Investment (+€2.1 bn).
GLG Partners (+€1.4 bn) was the leading promoter of alternatives funds for the year, followed by DWS Group (+€0.6 bn), Maitland (+€0.6 bn), Allianz (+€0.6 bn), and Nordea (+€0.4 bn).
Promoter Activity—Fund Launches, Liquidations, and Mergers
Despite the fact that 2020 was a tough year for mutual funds in terms of the economic situation, accompanied by declining overall assets under management in the European fund industry, promoter activity in terms of fund launches, liquidations, and mergers indicated the industry is still in a moderate growth mode. We witnessed a slight increase in the overall number of primary funds in Europe. Nevertheless, this increase may mark the beginning of the third year of growth in the overall number of primary funds since Lipper began to study these developments in 2012. More generally, the increasing number of funds was continuing a trend in Europe since the rate of decline slowed down for seven consecutive years.
The net growth of the number of funds occurred in a rough market environment with a significantly lower activity level from fund promoters. In more detail, after below average numbers for Q1 2020, the number of fund liquidations (253), mergers (208) and launches (466) in Q2 were all below the long-term quarterly averages—liquidations (348), mergers (266), and launches (492). Nevertheless, the drop in the number of fund launches still ended in a higher number of funds since the number of launches was higher than the combined number of mergers and liquidations. The main reason for the mergers and liquidations at the fund level were restructurings of the general product offerings. For example, some fund promoters merged funds with a similar investment objective to strengthen their product ranges.
Lower profitability because of a lack of assets under management might have been another reason fund promoters merged or liquidated some funds. At the top-line level, the activity of fund promoters with regard to fund launches and liquidations seemed to be in line with the activity over the other years covered in this report, while we witnessed a comparably low number of fund mergers. Since the implementation of new regulations—currently MiFID II—does increase the cost for maintaining a fund, we expect that the trend of consolidation of small funds will continue over the course of 2020.
Graph 8: Fund Launches, Liquidations and Mergers
Source: Refinitiv Lipper
The European fund promoters liquidated 531 funds over the course of H1 2020, while 390 funds were merged into other funds. In contrast, European fund promoters launched 942 funds. This means the overall number of primary funds in Europe increased by 21 products over the course of H1 2020.
A more detailed view shows that equity funds showed the highest number of liquidations (177) and launches (328), while mixed-assets funds witnessed the highest number of mergers (157). With regard to the broader trends in the financial markets, it was surprising equity funds showed the highest number of fund launches given the current market environment. Therefore, it can be guessed that the launching activity in this segment was still driven by the positive market environment in 2019, as it takes some time to bring a product to the market.
It was, however, surprising that the number of mixed-assets products declined by twenty primary funds over the course of H1 2020 since mixed-assets products showed the highest activity with regard to fund launches and were the product of choice of European investors in the past. Therefore, the declining number of new funds may be a sign of saturation in the fund market since the fund industry reacts to investor behaviour. Additionally, mixed-assets products have experienced lower and more concentrated net flows over the last few years, which may fuel the launching activity, as promoters may launch products with new investment objectives.
Graph 9: Fund Launches, Liquidations and Mergers in H1 2020 by Asset Type
Source: Refinitiv Lipper
The views expressed are the views of the author, not necessarily those of Refinitiv.
