August 2, 2021

Monday Morning Memo: European Fund Industry Review, H1 2021

by Detlef Glow.

It was no surprise that the European fund industry’s positive flow trend continued in the second quarter of 2021 since the COVID-19 pandemic in Europe was easing further. As a result, European investors continued to be in risk-on mode and the overall flow pattern in Europe normalized further.

Within this environment the assets under management in the European fund industry rose from €12.3 tr (as of December 31, 2020) to €14.3 tr at the end of Q2 2021. While ETFs held €1.2 tr, or 8.23% of the assets under management in Europe, the vast majority (€13.1 tr, or 91.77%), were held by mutual funds.

Graph 1: Assets Under Management by Product Type (Euro Millions)

Review of the European Fund Industry, H1 2021

Source: Refinitiv Lipper

The majority of assets were held by equity funds (€6.0 tr) followed by bond funds (€3.3 tr), mixed-assets funds (€2.4 tr), money market funds (€1.4 tr), alternative UCITS funds (€0.7 tr), real estate funds (€0.3 tr), “other” funds (€0.1 tr), and commodities funds (€0.1 tr).

Graph 2: Market Share Assets Under Management by Asset Type (June 30, 2021)

Source: Refinitiv Lipper

European Fund Flow Trends

The general flow pattern over the first half of 2021 clearly shows the positive mood of European investors since mutual fund (+€209.7 bn) and ETF (+€92.7 bn) promoters enjoyed inflows over the course of the first six months of 2021. A more detailed view of flow pattern by asset type shows that European investors are clearly back in risk-on mode since money market funds (-€80.1 bn) faced overall outflows, while long-term investment products enjoyed estimated inflows of €382.4 bn. The overall outflows from money market products for the year so far need to be seen in the context of the massive inflows into these products over the course of 2020.

This flow pattern drove the estimated overall net inflows to €302.4 bn year to date.

Taking a closer look, equity funds (+€212.6 bn) were the asset type with the highest estimated net inflows overall for 2021 so far. It is followed by bond funds (+€87.1 bn), mixed-assets funds (+€83.7 bn), commodities funds (+€5.2 bn), and alternative UCITS funds (+€2.6 bn). Meanwhile, real estate funds (-€1.0 bn), “other” funds (-€7.6 bn), and money market funds (-€80.1 bn) faced outflows for the year to date.

Graph 3: Estimated Net Sales by Asset and Product Type, January 1 – June 31, 2021 (Euro Billions)

Review of the European Fund Industry, H1 2021

Source: Refinitiv Lipper

Spotlight on the Active vs Passive Discussion

Despite the fact that the majority of fund flows for the first six months of 2021 were invested into mutual funds, ETFs are on the way to reach record inflows in 2021 as the all-time high for annual flows into ETFs in Europe from 2019 stood at €106.7 bn.

Graph 4: Estimated Net Sales of ETFs in Europe (Euro Millions)

Source: Refinitiv Lipper

The trend toward passive investment vehicles has been widely discussed by market observers and asset managers, and a new all-time high for inflows into ETFs will fuel these discussions further. Therefore, it is worthwhile to highlight this topic—especially as not all passive products are ETFs. In contrast to the year 2020, the flows into ETFs (+€92.7 bn) are outpacing the flows into passive mutual funds (€25.6 bn) by a large margin for 2021 to date.

More generally, there is no evidence that passive funds will continue their pattern from 2020 and overtake actively managed funds, as the majority (€184.1 bn, or 60.88%) of the overall fund flows for 2021 to date were invested in actively managed products. Meanwhile, €118.3 bn—or 39.12%—were invested in passive products. This pattern gets even clearer when one takes money market products into consideration, as the outflows from money market products brought the inflows into actively managed long-term funds up to €263.7 bn and, respectively, the market share of actively managed long-term products up to 68.94% of the overall flows. Meanwhile, passive long-term products had inflows of €118.8 bn—or 31.06%—of the overall inflows.

Graph 5: Market Share of the Estimated Net Flows by Management Approach (January 1 – June 30, 2021)

Review of the European Fund Industry, H1 2021

Source: Refinitiv Lipper

Fund Flows by Lipper Global Classifications

A closer look at the best- and worst-selling Lipper Global Classifications for the first half of 2021 shows that European investors sold some of their safe-haven investments while investing in funds that may offer diversification for their portfolio or are focused on single themes, sectors, and countries. This shows that European investors are back in a risk-on mode.

As graph 3 shows, money market products faced—as opposed to in 2020—the highest outflows over the course of the first half of 2021, while equity products enjoyed the highest inflows. It is, therefore, not surprising that equity peer groups also dominate the table of the best-selling Lipper Global Classifications. Equity Global (+€100.0 bn) was the best-selling peer group for the year so far. It was followed by Mixed Asset EUR Flexible – Global (+€25.0 bn), Equity Sector Information Technology (+€15.6 bn), Mixed Asset EUR Global – Balanced (+€15.2 bn), and Equity China (+€12.8 bn). It is noteworthy that the strong estimated net inflows into mixed-assets funds over the course of May and June drove the positions of the two mixed-assets classifications within the 10 best-selling classifications up for the year 2021 so far.

Graph 6: Ten Best- and Worst-Selling Lipper Global Classifications by Estimated Net Sales, January 1 – June 30, 2021 (Euro Billions)

Review of the European Fund Industry, H1 2021

Source: Refinitiv Lipper

Conversely, the safe-haven favorites of 2020 were at the opposite side of the table. Money Market EUR (-€48.8bn) faced the highest outflows for the year so far. It was bettered by Money Market GBP (-€28.9 bn), Equity Global Income (-€11.0 bn), Bond Global Corporates USD (-€7.2 bn), and Unclassified (-€6.8 bn). It is noteworthy that the estimated flows in money market sectors are not only a reflection of asset allocation decisions of investors, as these products are also used by corporates as a replacement for cash accounts.

Fund Flows by Promoters

Unsurprisingly, the largest fund promoter in Europe, BlackRock (+€65.3 bn), is also the best-selling fund promoter over the course of the first half of 2021, ahead of JPMorgan (+€17.9 bn), Vanguard Group (+€17.7 bn), UBS (+€17.3 bn), and Allianz (+€13.4 bn).

Graph 7: Ten Best-Selling Fund Promoters in Europe, January 1 – June 30, 2021 (Euro Billions)

Source: Refinitiv Lipper

Considering the single-asset classes, BlackRock (+€10.5 bn) was the best-selling promoter of bond funds, followed by UBS (+€9.6 bn), Vanguard Group (+€5.2 bn), State Street (+€4.6 bn), and BNP Paribas Asset Management (+€4.6 bn).

Within the equity space, BlackRock (+€48.4 bn) led the table, followed by JPMorgan (+€13.6 bn), DWS Group (+€11.7 bn), Capital Group (+€8.7 bn), and Vanguard Group (+€7.8 bn).

Allianz (+€5.0 bn) was the leading promoter of mixed-assets funds in Europe, followed by Vanguard Group (+€4.8 bn), Union Investment (+€4.3 bn), Bankia (+€3.7 bn), and BlackRock (+€3.5 bn).

Pictet (+€2.5 bn) was the leading promoter of alternative UCITS funds for the month, followed by JPMorgan (+€2.0 bn), Nordea (+€1.3 bn), DWS Group (+€1.3 bn), and Pimco (+€1.3 bn).

Fund Flows by Fund Domiciles

Single-fund domicile flows (including those to money market products) showed, in general, a positive picture during May. Twenty-five of the 34 markets covered in this report showed estimated net inflows, and nine showed net outflows. Luxembourg (+€178.5 bn) was the fund domicile with the highest net inflows, followed by Ireland (+€88.4 bn), Spain (+€17.5 bn), Germany (+€14.1 bn), and Switzerland (+€10.7 bn). On the other side of the table, France (-€38.2 bn) was the fund domicile with the highest outflows, bettered by Finland (-€11.7 bn) and Jersey (-€4.7 bn). It is noteworthy that the fund flows for Luxembourg (-€11.9 bn), France (-€28.7 bn), and Ireland (-€30.8 bn) were impacted by outflows from the money market segment.

Graph 8: Estimated Net Sales by Fund Domiciles, January 1 – June 30, 2021 (Euro Billions)

Source: Refinitiv Lipper

Within the bond sector, funds domiciled in Ireland (+€32.2 bn) led the table, followed by Luxembourg (+€29.2 bn), Switzerland (+€12.3 bn), the Netherlands (+€5.3 bn), and the UK (+€4.8 bn). Bond funds domiciled in Italy (-€1.4 bn), Germany (-€1.4 bn), and France (-€1.4 bn) were at the other end of the table.

For equity funds, products domiciled in Luxembourg (+€125.4 bn) led the table, followed by Ireland (+€74.0 bn), Sweden (+€8.1 bn), Germany (+€6.8 bn), and the UK (+€4.6 bn). Meanwhile, Finland (-€12.0 bn), Switzerland (-€4.9 bn), and France (-€2.9 bn) were the domiciles with the highest estimated net outflows from equity funds.

Regarding mixed-assets products, Luxembourg (+€25.2 bn) was the domicile with the highest estimated net inflows, followed by the UK (+€13.1 bn), Spain (+€9.5 bn), Switzerland (+€5.8 bn), and Italy (+€5.3 bn). In contrast, Denmark (-€1.4 bn), Jersey (-€0.6 bn), and Liechtenstein (-€0.3 bn) were the domiciles with the highest estimated net outflows from mixed-assets funds.

Luxembourg (+€9.3 bn) was the domicile with the highest estimated net inflows into alternative UCITS funds, followed by Ireland (+€6.6 bn) and Spain (+€0.7 bn). Meanwhile, France (-€7.4 bn), the UK (-€5.1 bn), and Italy (-€2.4 bn) were at the other end of the table.

Promoter Activity—Fund Launches, Liquidations, and Mergers

The ongoing risk appetite of European investors led to a further normalization of the fund flow pattern in the European fund industry, while the situation with regard to the COVID-19 pandemic eases up further in some European countries. Within this environment, the activity of European fund promoters in terms of fund launches, liquidations, and mergers indicated that the industry is further in a business-as-usual mode, as we witnessed a slight decrease in the overall number of primary funds in Europe over the first half of 2021. Despite this negative trend in the second quarter 2021, we expect to see the fourth year of growth since Lipper began to study these developments in 2012. More generally, the decreasing number of funds was breaking a trend in Europe since the rate of decline has slowed down for more than seven consecutive years.

The net decreasing number of funds for the first half of 2021 occurred in a volatile but, in general, positive market environment with increasing assets under management. Therefore, it was somewhat surprising that fund promoters showed a generally lower level of activity with regard to fund launches, and the maintenance of their existing product ranges. In more detail, the number of fund liquidations (580), mergers (341), and launches (913) over the course of the first half of 2021 were all below the long-term six-month averages—liquidations (655), mergers (506), and launches (954). Nevertheless, the drop in the number of fund launches led to a decreasing number of funds (minus eight) for the year so far. One of the reasons 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 why 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, as we don’t witness any excess activity for fund launches, liquidations, or mergers. Since the implementation of new regulations, such as MiFID II, does increase the cost for maintaining a fund, we expect that the trend of consolidation of small funds will continue in 2021 and beyond.

Graph 9: Fund Launches, Liquidations, and Mergers

Source: Refinitiv Lipper

European fund promoters liquidated 580 funds over the course of H1 2021, while 341 funds were merged into other funds. In contrast, European fund promoters launched 913 funds. This means the overall number of primary funds in Europe decreased by eight products over the course of H1 2021.

A more detailed view shows that equity funds experienced the highest number of liquidations (226), mergers (120), and launches (391) for the first half of the year. With regard to the broader trends in financial markets and the trends in the European fund industry, it was not surprising equity funds showed the highest number of fund launches given the fact equities is the asset type with the highest number of funds. The underlying trends for the high activity in this sector might be the current market environment and the trends toward passive and/or ESG-related products. The latter is also true for other asset classes.

The number of new mixed-assets products (a loss of four) might be a sign of market saturation even as mixed-assets products have experienced high but somewhat concentrated inflows in Q2 2021. That said, the concentration of fund flows toward a small number of funds may fuel fund launches and mergers since promoters may want launch products with similar investment objectives as the successor funds and support the assets under management of those funds by merging them with other products. This will increase the assets under management of the new products and make them more attractive for investors.

Graph 9: Fund Launches, Liquidations, and Mergers H1 2021 by Asset Type

Review of the European Fund Industry, H1 2021

Source: Refinitiv Lipper

 

Refinitiv Lipper delivers data on more than 330,000 collective investments in 113 countries. Find out more.

 

The views expressed are the views of the author and not necessarily those of Refinitiv. This material is provided as market commentary and for educational purposes only and does not constitute investment research or advice. Refinitiv cannot be held responsible for any direct or incidental loss resulting from applying any of the information provided in this publication or from any other source mentioned. Please consult with a qualified professional for financial advice

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