April 25, 2022

Monday Morning Memo: European Fund Flow Trends, Q1 2022

by Detlef Glow.

It was not surprising that Q1 2022 was in general a negative quarter for the European fund industry given the geopolitical situation in Europe, the still ongoing COVID-19 pandemic, and the sluggish market environment. Within this market environment and given the economic uncertainties, one would expect that European investors sold long-term funds and bought money market products. Therefore, it is somewhat surprising that European investors sold money market products, which are normally considered safe-haven investments, while long-term products enjoyed overall inflows. In more detail, long-term funds enjoyed estimated net inflows of €25.0 bn, while money market products faced estimated net outflows of €113.6 bn.

This flow pattern drove the estimated overall net flows to negative €88.6 bn year to date.

While mutual funds (-€127.0 bn) faced estimated net outflows, ETFs enjoyed inflows of €38.3 bn over the course of the first quarter of 2022. The inflows into ETFs within this market environment repeat a trend we witnessed over other rough market periods such as the financial crisis or the euro crisis, where ETFs enjoyed inflows while mutual funds faced massive outflows (Please read our review of the fund flow trends in the European ETF industry over the course of Q1 2022 for more details on this topic).

Nevertheless, the high outflows from money market products over the course of the first three months of 2022 are somewhat surprising since these products are considered to be so-called safe-haven products. Therefore, this trend might be a hint that European investors want to protect their portfolios from the impact of high inflation rates. The same is true for the outflows from bond funds, as European investors started to sell broader bond classifications beside the risk-off move we witnessed over the course of January and February.

The current investor behavior shows that European investors are in risk-off mode.

Taking a closer look, mixed-assets funds (+€32.1 bn) were the asset type with the highest estimated net inflows overall for 2022 so far. It is followed by equity funds (+€28.3 bn), real estate funds (+€4.1 bn), “other” funds (+€2.6 bn), commodities funds (+€2.0 bn), and alternative UCITS funds (+€1.2 bn). Meanwhile, bond funds (-€45.3 bn) and money market funds (-€113.6 bn) faced estimated overall outflows for the year so far.

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

European Fund Flow Trends Q1 2022

Source: Refinitiv Lipper

The trend toward passive investment vehicles is—especially after the new record inflows over the course of 2021—widely discussed by market observers and asset managers, so it is worthwhile to highlight this topic, especially since not all passive products are ETFs. In fact, the flows into ETFs (+€38.3 bn) were outpacing the flows into passive index mutual funds (€17.6 bn) for the first three months of 2022.

Graph 2: Estimated Net Flows by Management Approach and Product Type (January 1 – March 31, 2022)

European Fund Flow Trends Q1 2022

Source: Refinitiv Lipper

The fact that European investors are buying into passive products in times of market turmoil is not surprising. Graph 3 shows that this flow pattern is rather the normal case in periods with rough market conditions. With regard to this, it looks like European investors prefer transparent and liquid products in their portfolios since they want to know what they own and want to be able to sell their holdings immediately. Since transparency and literally permanent liquidity are two of the main product features, it is no surprise that European investors use these products in their portfolios during times of market turmoil.

Graph 3: Annual Estimated Net Flows by Management Approach and Product Type January 1, 2004 – March 31, 2022 (Euro Billions)

Source: Refinitiv Lipper

 

Money Market Products

With a market share of 9.83% of the overall assets under management in the European fund management industry, money market products are the fourth largest asset type. Therefore, it is worthwhile to briefly review the trends in this market segment. Since the market environment was rather uncertain with the current geopolitical tensions in Europe and other parts of the world and the exacerbating situation around the COVID-19 pandemic, it was somewhat surprising that European investors decreased their money market positions over the course of the year 2022 so far. Money market funds faced estimated net outflows for the year (-€113.6 bn). Opposite to their active peers (-€114.1 bn), ETFs investing in money market instruments contributed estimated net inflows of €0.5 bn to the total.

Money Market Products by Lipper Global Classification

In more detail, Money Market Global (+€1.9 bn) was the best seller within the money market segment, followed by Money Market SEK (+€0.7 bn) and Money Market NOK (+€0.4 bn). At the other end of the spectrum, Money Market EUR (-€58.2 bn) suffered the highest net outflows overall, bettered by Money Market USD (-€42.2 bn) and Money Market GBP (-€15.2 bn).

In conjunction with the asset allocation decisions of portfolio managers, these shifts in the money market segment 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 4: Estimated Net Flows in Money Market Products by LGC – January 1 – March 31, 2022 (Euro Billions)

Source: Refinitiv Lipper

 

Fund Flows by Lipper Global Classifications

The general trend toward broadly diversified products seems to be still ongoing. The year-to-date flows clearly show that European investors are selling money market products. This flow pattern shows somewhat mixed signals as a view on the year-to-date numbers will lead to the assumption that European investors are still somewhat in a risk-on mode despite the rough market environment.

As graph 1 shows, money market products faced the highest outflows over the course of the first three months of 2022, while mixed-assets products enjoyed the highest inflows. Given the overall trend it was not surprising that the table of the best-selling Lipper Global Classifications year to date was split between the equity and mixed-assets peer groups, with only two bond categories joining the table of the 10 best-selling Lipper global classifications. Equity Global (+€28.4 bn) was the best-selling peer group for the year so far. It was followed by Equity US (+€9.2 bn), Mixed Asset EUR Balanced – Global (+€7.8 bn), Equity Global Income (+€6.7 bn), and Target Maturity MA EUR 2030 (+€4.9 bn). Given the current market environment, it would not be surprising to see a lot of change in the best-selling Lipper Global Classifications on a year-to-date basis over the course of the next few months.

Graph 5: Ten Best- and Worst-Selling Lipper Global Classifications by Estimated Net Sales, January 1 – March 31, 2022 (Euro Billions)

European Fund Flow Trends Q1 2022

Source: Refinitiv Lipper

Surprisingly the so-called safe-haven favorites were at the opposite side of the table. Money Market EUR (-€58.2 bn) faced the highest outflows for the year so far. It was bettered by Money Market USD (-€42.2 bn), Money Market GBP (-€15.2 bn), Bond Global EUR (-€8.8 bn), and Bond EUR Corporates (-€7.0 bn).

As mentioned before, it is noteworthy that the estimated flows in money market sectors are not only a reflection of asset allocation decisions of investors since 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 (+€9.0 bn), is also the best-selling fund promoter over the course of the first three months of 2022, ahead of UBS (+€7.2 bn), Vanguard (+€4.8 bn), Lumyna (+€4.7 bn), and Invesco (+€4.3 bn). The difference of the estimated ETF flows between BlackRock (+€16.3 bn) and UBS (-€1.0 bn) may show the difference between an independent and a bank-owned fund promoter, since the sales in UBS ETFs seem to be impacted by asset allocation decisions from the wealth management business of the bank.

By looking at these numbers, one needs to bear in mind that outflows from money market products over the course of 2022 so far have a significant impact on the flow numbers and positions in the league table of the leading fund promoters in Europe.

Graph 6: Ten Best-Selling Fund Promoters in Europe, January 1 – March 31, 2022 (Euro Billions)

European Fund Flow Trends Q1 2022

Source: Refinitiv Lipper

Considering the single-asset classes, UBS (+€5.9 bn) was the best-selling promoter of bond funds, followed by Invesco (+€1.6 bn), Legal & General (+€1.4 bn), Aviva (+€1.3 bn), and ASR Bank (+€1.3 bn).

Within the equity space, BlackRock (+€21.3bn) led the table, followed by Amundi (+€7.8 bn), Vanguard (+€2.6 bn), DWS Group (+€2.1 bn), and Invesco (+€1.9 bn).

Allianz (+€4.7 bn) was the leading promoter of mixed-assets funds in Europe, followed by Union Investment (+€2.5 bn), Baillie Gifford (+€2.1 bn), DWS Group (+€1.9 bn), and BlackRock (+€1.7 bn).

Lumyna (+€4.2 bn) was the leading promoter of alternative UCITS funds for the year, followed by Wellington Management (+€1.5 bn), Schroders (+€0.7 bn), Syquant Capital (+€0.4 bn), and Gresham House (+€0.4 bn).

 

Fund Flows by Fund Domiciles

Single-fund domicile flows (including those to money market products) showed, in general, a negative picture over the course of 2022 so far. Only 14 of the 35 markets covered in this report showed estimated net inflows, while 21 showed net outflows. Switzerland (+€20.2 bn) was the fund domicile with the highest net inflows for the year so far, followed by Germany (+€7.6 bn), Spain (+€3.0 bn), Denmark (+€2.7 bn), and Belgium (+€2.7 bn). On the other side of the table, Luxembourg (-€56.1 bn) was the fund domicile with the highest outflows, bettered by France (-€53.8 bn) and Ireland (-€18.6 bn). It is noteworthy that the fund flows for France (-€46.4 bn), Luxembourg (-€41.9 bn), and Ireland (-€33.8 bn) were impacted by outflows from the money market segment.

Graph 7: Estimated Net Sales by Fund Domiciles, January 1 – March 31, 2022 (Euro Billions)

Source: Refinitiv Lipper

Within the bond sector, funds domiciled in Switzerland (+€4.0 bn) led the table, followed by the Netherlands (+€1.2 bn), the Czech Republic (+€0.5 bn), Belgium (+€0.5 bn), and Guernsey (+€0.2 bn). Bond funds domiciled in Luxembourg (-€30.8 bn), Ireland (-€11.6 bn), and France (-€2.3 bn) were at the other end of the table.

For equity funds, products domiciled in Ireland (+€21.9 bn) led the table for the year, followed by Switzerland (+€7.3 bn), the UK (+€4.3 bn), Denmark (+€3.0 bn), and Norway (+€1.4 bn). Meanwhile, Luxembourg (-€3.5 bn), France (-€3.4 bn), and Sweden (-€3.4 bn) were the domiciles with the highest estimated net outflows from equity funds.

Regarding mixed-assets products, Luxembourg (+€14.3 bn) was the domicile with the highest estimated net inflows, followed by Switzerland (+€6.2 bn), Germany (+€4.2 bn), Italy (+€2.7 bn), and Austria (+€1.3 bn). In contrast, the UK (-€2.5 bn), Spain (-€1.0 bn), and France (-€0.9 bn) were the domiciles with the highest estimated net outflows from mixed-assets funds.

Luxembourg (+€5.1 bn) was the domicile with the highest estimated net inflows into alternative UCITS funds for the year so far, followed by Liechtenstein (+€0.7 bn) and Guernsey (+€0.4 bn). Meanwhile, Ireland (-€1.6 bn), the UK (-€1.1 bn), and France (-€0.9 bn) were at the other end of the table.

 

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

 

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

 

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