It was somewhat surprising to see that the European fund industry faced slight outflows for May. These outflows occurred in an unstable market environment in which some asset classes showed positive results, while others performed negatively over the course of the month. The market sentiment was still driven by hopes that central banks, especially the U.S. Federal Reserve, may have reached the last phase of their fight against high inflation rates and may, therefore, start to keep interest rates at least stable quite soon. Some investors already expect that there might be room for decreasing interest rates later this year. Nevertheless, there are still some concerns about geopolitical tensions, and the normalization of the disrupted delivery chains, as well as a still possible recession in the U.S. and other major economies around the globe. These fears are raised by inverted yield curves which are seen as an early indicator for a possible recession.
That said, mutual fund promoters (-€9.5 bn) faced outflows, while ETF promoters (+€7.7 bn) enjoyed inflows over the course of the month. The outflows from actively managed funds were driven by outflows from literally all long-term asst types with the exception of bonds (+€13.3 bn). Within the current market environment, it is not surprising that European investors bought money market products, since the Eurozone has an inverted yield curve, which means that money market products offer a higher yield than medium or long-term bonds. More generally, long-term funds (-€2.7 bn) faced outflows, while money market products (+€1.0 bn) enjoyed inflows for the month. These flow numbers might be seen as a sign that European investors have moved to a risk-off mode, as they sold products with equity market exposure.
Asset Type Flows May 2023
In more detail, bond funds (+€13.3 bn) were the best-selling asset type overall for May 2023. The category was followed by money market funds (+€1.0 bn), and “other” funds (+€0.2 bn), while all other asset types faced outflows for the month. Real estate funds (-€0.3 bn), commodities funds (-€0.7 bn), alternative UCITS funds (-€4.4 bn), equity funds (-€4.5 bn), and mixed-assets funds (-€6.3 bn).
Graph 1: Estimated Net Flows by Asset and Product Type – May 2023 (in bn EUR)
Source: LSEG Lipper
Asset Type Flows Year to Date
The flow pattern for May drove the estimated overall net flows to €46.9 bn year to date.
While mutual funds (-€11.3 bn) faced estimated net outflows, ETFs enjoyed inflows of €58.2 bn over the course of the first five months of 2023. The inflows into ETFs within the positive, but still somewhat uncertain, 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.
Despite the inverted yield curve for Eurozone bonds, European investors bought further into bond funds, which might be seen as a sign that European investors may anticipate a possible ending of the interest hiking cycle of central banks around the globe led by the U.S. Federal Reserve.
Overall, long-term investment products (+€35.1 bn) and money market funds (+€11.8 bn) enjoyed inflows for the year so far.
Taking a closer look, bond funds (+€77.5 bn) were the asset type with the highest estimated net inflows overall for 2023 so far. It is followed by equity funds (+€16.4 bn) and money market funds (+€11.8 bn), as well as “other” funds (+€1.4 bn). On the other hand, real estate funds (-€0.1 bn), commodities funds (-€1.4 bn), alternative UCITS funds (-€20.9 bn), and mixed-assets funds (-€37.7 bn) faced outflows for the year to date.
Graph 2: Estimated Net Sales by Asset and Product Type, January 1 – May 31, 2023 (Euro Billions)
Source: LSEG Lipper
Fund Flows Active vs Passive Products
The trend toward passive investment vehicles is widely discussed by market observers and asset managers, so it is worthwhile to highlight this topic, especially as not all passive products are ETFs. In fact, the flows into ETFs (+€58.2 bn) were outpacing the flows into passively managed index mutual funds (€23.0 bn) for the first five months of 2023.
Graph 3: Estimated Net Flows by Management Approach and Product Type (January 1 – May 31, 2023)
Source: LSEG Lipper
Fund Flows by Lipper Global Classifications, May 2023
When it comes to the overall sales for May, it was somewhat surprising that Money Market USD (+€5.6 bn) dominated the table of the 10 best-selling peer groups by estimated net flows for May since bond funds enjoyed the highest inflows for the month. It was followed by Target Maturity Bond 2020+ (+€4.6 bn), Equity Global (+€4.2 bn), Bond EUR Corporates (+€2.6 bn), and Bond EMU Government (+€2.3 bn).
Graph 4: Ten Best- and Worst-Selling Lipper Global Classifications by Estimated Net Sales, May 2023 (Euro Millions)
Source: LSEG Lipper
On the other side of the table, Money Market GBP (-€2.8 bn) faced once again the highest estimated net outflows for May, bettered by Money Market EUR (-€2.6 bn) and Mixed Asset EUR Cons – Global (-€1.9 bn).
A closer look at the best- and worst-selling Lipper Global Classifications for May shows that European investors were somewhat in mixed mode with regard to their risk appetite over the course of the month. In more detail, European investors increased their positions in bond classifications mainly in EUR and USD money market products. In addition to this, they took also positions in somewhat riskier sectors, such as Equity Emerging Markets Global, Equity Global, and Bond EUR Corporates.
Fund Flows by Lipper Global Classifications, Year to Date
A closer look at the best- and worst-selling Lipper Global Classifications for the first five months of 2023 shows that European investors are somewhat in a mixed mode with regard to their risk appetite, since Equity Global dominated the table of the best-selling Lipper Global Classifications.
As graph 2 shows, mixed-assets products faced the highest outflows over the course of the year 2023 so far, while bond 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 dominated by bond classifications, with two equity categories and one money market classification joining the table of the 10 best-selling Lipper global classifications. Equity Global (+€27.6 bn) was the best-selling peer group for the year so far. It was followed by Money Market USD (+€26.6 bn), Target Maturity Bond 2020+ (+€26.3 bn), Money Market EUR (+€26.1 bn), and Equity Emerging Markets Global (+€16.8 bn).
Graph 5: Ten Best- and Worst-Selling Lipper Global Classifications by Estimated Net Sales, January 1 – May 31, 2023 (Euro Billions)
Source: LSEG Lipper
Given the current market environment it was surprising to see so many mixed-assets classifications at the opposite side of the table. Money Market GBP (-€50.4 bn) faced the highest outflows for the year so far. It was bettered by Mixed Asset GBP Balanced (-€14.8 bn), Mixed Asset EUR Flex – Global (-€11.0 bn), Bond EUR Short Term (-€9.3 bn), and Mixed Asset EUR Cons – Global (-€8.9 bn).
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. In addition, one needs to bear in mind that the yield curves in the Eurozone and other parts of the world are currently inverted, which means that money market instruments offer a higher yield than medium or long-term bonds.
Fund Flows by Promoters, May 2023
BlackRock (+€13.0 bn) was the best-selling fund promoter in Europe for May, ahead of JPMorgan (+€8.8 bn), Amundi (+€3.9 bn), Vanguard (+€2.7 bn), and State Street Global Advisors (+€2.5 bn). Given the product ranges of the 10-top promoters and the overall fund flow trends, it was surprising to see that ETFs didn’t play a more significant role for the positions of the leading ETF promoter in Europe.
Graph 6: Ten Best-Selling Fund Promoters in Europe, May 2023 (Euro Millions)
Source: LSEG Lipper
Fund Flows by Promoters, Year to Date
The largest fund promoter in Europe, BlackRock, (+€35.8 bn) is the best-selling fund promoter in Europe over the course of the year so far, ahead of JPMorgan (+€24.7 bn), Vanguard (+€14.2 bn), Swisscanto (+€12.0 bn), and BNP Paribas (+€9.8 bn).
By looking at these numbers, one needs to bear in mind that the flows in the money market segment over the course of 2023 so far have a significant impact on the flow numbers and positions in the league table of the best-selling fund promoters in Europe.
Graph 7: Ten Best-Selling Fund Promoters in Europe, January 1 – May 31, 2023 (Euro Billions)
Source: LSEG Lipper
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.
