Given the generally positive market environment over the course of October 2022, it was not surprising that the European fund industry enjoyed overall estimated inflows over the course of the month. That said, one needs to bear in mind that the geopolitical situation in Europe, the still ongoing COVID-19 pandemic, disrupted delivery chains, increasing interest rates triggered by high and in some cases still further increasing inflation rates are all impacting investor expectations. With regard to this, the estimated flows at the asset type level show that European investors are further in risk-off mode as long-term funds faced overall outflows, while money market products enjoyed the highest monthly inflows in history. These historically high inflows were mainly triggered by the market turmoil in the UK after the announcement of the so-called “mini budget” at the end of September. The market turmoil caused a crisis for pension funds which used liability-driven investment (LDI) strategies to meet their defined benefit liabilities. To do this, pension funds have shifted money into money market products to build cash reserves which can help them to meet possible demand for cash caused by withdrawals or further calls for collateral.
As a result, it can be said that the European fund industry did not see a reversal of the negative fund flow trend which the industry was facing over the course of the first nine months of 2022.
At the product level, the promoters of mutual funds (+€69.7 bn) and ETFs (+€7.8 bn) enjoyed, as expected, overall inflows.
As for the positive performance of the stock markets around the globe, it was somewhat surprising that European investors sold equity funds. In more detail, short-term (money market) products (+€125.2 bn) enjoyed the highest monthly inflows in history, while long-term funds (-€47.7 bn) faced outflows over the course of October 2022.
At a closer look, money market funds (+€125.2 bn) and real estate funds (+€0.5 bn) were the only asset types which enjoyed inflows over the course of October 2022. On the other side of the table were “other” funds (-€0.9 bn), commodities funds (-€1.4 bn), mixed-assets funds (-€6.4 bn), alternative UCITS funds (-€10.5 bn), equity funds (-€12.1 bn), and bond funds (-€16.9 bn).
Graph 1: Estimated Net Flows by Asset and Product Type – October 2022 (in bn EUR)
Source: Refinitiv Lipper
Money Market Products
With a market share of 12.07% of the overall assets under management in the European fund management industry, money market products are the fourth largest asset type. Therefore, it is worth briefly reviewing the trends in this market segment. Especially as money market products witnessed the highest estimated monthly inflows in history over the course of October 2022.
These flows were triggered by the turmoil in UK government bond segment and the resulting impact on pension funds using LDI strategies after the announcement of the so-called “mini budget” by the former UK government. The announcement drove the interest rates for UK government bonds up which caused their prices to fall. As a result, the managers of pension funds received margin calls and needed cash to fulfil their obligations from the instruments used for the LDI strategies. The additional collateral was invested in money market products. Therefore, it is not surprising that three of the largest managers of LDI strategies (BlackRock, Insight, and Legal & General) received the majority of the overall inflows in money market products (+€125.2 bn) over the course of October. In line with their active peers (+€125.0 bn), ETFs investing in money market instruments contributed estimated net inflows of €0.2 bn to the total.
Graph 2: Estimated Monthly Net Flows in Money Market Products (Euro Millions)
Source: Refinitiv Lipper
Money Market Products by Lipper Global Classification
In more detail, Money Market GBP (+€80.8 bn) was the best seller within the money market segment, followed by Money Market EUR (+€36.4 bn) and Money Market USD (+€5.7 bn). At the other end of the spectrum, Money Market EUR Leveraged (-€0.9 bn) suffered the highest net outflows in the money market segment, bettered by Money Market Other (-€0.03 bn) and Money Market SGD (-€0.01 bn).
In addition to the explanation above, the flows in money market products are also impacted by a combination of asset allocation decisions of portfolio managers and corporate actions such as cash dividends or cash payments since money market funds are also used by corporations as replacements for cash accounts.
Graph 3: Estimated Net Flows in Money Market Products by LGC – October 2022 (Euro Billions)
Source: Refinitiv Lipper
Fund Flows by Lipper Global Classifications
When it comes to the overall sales for October, it was not surprising that four money market classifications were among the table of the 10 best-selling peer groups by estimated net inflows for October. Money Market GBP (+€80.7 bn) was the best-selling Lipper Global Classification for the month. It was followed by Money Market EUR (+€36.1 bn), Target Maturity Bond EUR 2020+ (+€7.2 bn), Money Market USD (+€5.7 bn), and Alternative Other (+€3.9 bn).
Graph 4: Ten Best- and Worst-Selling Lipper Global Classifications by Estimated Net Sales, October 2022 (Euro Millions)
Source: Refinitiv Lipper
On the other side of the table, Bond EUR Short Term (-€4.6 bn) faced the highest estimated net outflows for October. It was bettered by Alternative Credit Focus (-€3.7 bn) and Bond Emerging Markets Global in Local Currencies (-€3.5 bn).
A closer look at the best- and worst-selling Lipper Global Classifications for October shows that European investors were further somewhat readjusting their asset allocation. European investors selling equity funds investing in Europe was a trend that continued over the course of October even as the respective peer groups were not on the table of the 10 Lipper Global Classifications with the highest outflows. Even as the overall flows for October 2022 were heavily impacted by the money market segment, the flows within the segment of long-term products might be a sign that European investors are readjusting their portfolios to try to protect their portfolios against a possible negative outcome from the current economic environment and the measures taken by central banks around the globe to fight increasing inflation rates.
Fund Flows by Promoters
BlackRock (+€23.5 bn) was the best-selling fund promoter in Europe for October, ahead of Legal & General (+€20.3 bn), Insight (+€19.4 bn), HSBC (+€7.3 bn), and Amundi (+€5.3 bn). Given the product ranges of the 10-top promoters and the overall fund flow trends, it was somewhat surprising to see that ETFs played only a minor role for the 10 best-selling fund promoters.
In addition, it is noteworthy that the fund flows for BlackRock (+€22.3 bn), Legal & General (+€22.7 bn), and Insight (+€23.1 bn) were heavily impacted by inflows in money market products.
Graph 5: Ten Best-Selling Fund Promoters in Europe, October 2022 (Euro Millions)
Source: Refinitiv Lipper
Considering the single-asset classes, La Caixa (+€2.5 bn) was the best-selling promoter of bond funds, followed by BlackRock (+€1.7 bn), Santander (+€1.5 bn), Amundi (+€1.1 bn), and BBVA (+€0.7 bn).
Within the equity space, BlackRock (+€1.6 bn) led the table, followed by Aviva (+€1.3 bn), Erste Bank (+€1.0 bn), Swisscanto (+€0.9 bn), and Mediolanum (+€0.6 bn).
ING (+€5.0 bn) was the leading promoter of mixed-assets funds in Europe, followed by Insight (+€0.7 bn), Mercer (+€0.5 bn), NN Investment Partners (+€0.4 bn), and True Potential (+€0.3 bn).
Mercer (+€2.1 bn) was the leading promoter of alternative UCITS funds for the month, followed by Columbia Threadneedle (+€2.0 bn), Schroders (+€0.5 bn), Fulcrum (+€0.4 bn), and Trea (+€0.2 bn).
Fund Flows by Fund Domiciles
Single-fund domicile flows (including those to money market products) showed, in general, a positive picture over the course of October. Twenty-one of the 35 markets covered in this report showed estimated net inflows, and 14 showed net outflows. Ireland (+€78.5 bn) was the fund domicile with the highest net inflows, followed by France (+€13.6 bn), Switzerland (+€5.5 bn), Spain (+€3.2 bn), and Sweden (+€1.0 bn). On the other side of the table, the UK (-€12.3 bn) was the fund domicile with the highest outflows, bettered by Luxembourg (-€8.4 bn) and Denmark (-€1.3 bn).
It is noteworthy that the estimated net flows for Ireland (+€88.6 bn), Luxembourg (+€17.7 bn), France (+€16.5 bn), and Switzerland (+€3.2 bn) were impacted by the flows in money market products.
Graph 6: Estimated Net Sales by Fund Domiciles, October 2022 (Euro Billions)
Source: Refinitiv Lipper
Within the bond sector, funds domiciled in Spain (+€5.1 bn) led the table, followed by Hungary (+€0.4 bn) and Germany (+€0.4 bn). Bond funds domiciled in Luxembourg (-€14.2 bn), Ireland (-€5.5 bn), and France (-€2.1 bn) were at the other end of the table.
For equity funds, products domiciled in Switzerland (+€1.6 bn) led the table for the month, followed by Austria (+€1.1 bn) and Sweden (+€0.7 bn). Meanwhile, Luxembourg (-€7.9 bn), the UK (-€6.0 bn), and the Netherlands (-€0.8 bn) were the domiciles with the highest estimated net outflows from equity funds.
Regarding mixed-assets products, Ireland (+€0.9 bn) was the domicile with the highest estimated net inflows for the month, followed by the Netherlands (+€0.4 bn) and Guernsey (+€0.1 bn). In contrast, the UK (-€2.6 bn), Germany (-€1.0 bn), and Italy (-€0.9 bn) were the domiciles with the highest estimated net outflows from mixed-assets funds.
Sweden (+€0.1 bn) was the domicile with the highest estimated net inflows into alternative UCITS funds for the month, followed by Spain (+€0.1 bn) and the Netherlands (+€0.04 bn). Meanwhile, Ireland (-€4.4 bn), Luxembourg (-€2.9 bn), and the UK (-€2.6 bn) were at the other end of the table.
This article is for information purposes only and does not constitute any investment advice.
The views expressed are the views of the author, not necessarily those of Refinitiv Lipper or LSEG.
