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August 21, 2023

Monday Morning Memo: European Fund Flow Trends Report, July 2023

by Detlef Glow.

Given the current market environment, it was not surprising to see that the European fund industry enjoyed estimated net inflows for July. These inflows 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 or early next year. Nevertheless, there are still some concerns about geopolitical tensions, and the normalization of delivery chains, as well as a still possible recession in the U.S. and other major economies around the globe. These recessionary fears are raised by inverted yield curves which are seen as an early indicator for a possible recession.

That said, mutual fund promoters (-€1.8 bn) faced slight outflows, while ETF promoters (+€15.8 bn) enjoyed inflows over the course of the month. The outflows from actively managed funds were driven by outflows from mixed-assets products (-€11.1 bn). Within the current market environment, it is not surprising that European investors bought money market products, since the Eurozone and other major economies have 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 (-€1.7 bn) faced outflows, while money market products (+€15.7 bn) enjoyed inflows for the month. These flow numbers might be seen as a sign that European investors are further readjusting their portfolios to the current market environment.

 

Asset Type Flows July 2023

In more detail, money market funds (+€15.7 bn) were the best-selling asset type overall for July 2023. The category was followed by bond funds (+€15.2 bn) and equity funds (+€0.7 bn), while all other asset types faced outflows for the month. Real estate funds (-€0.5 bn), commodities funds (-€0.6 bn), “other” funds (-€1.5 bn), alternative UCITS funds (-€4.0 bn), and mixed-assets funds (-€11.1 bn) all saw outflows.

Graph 1: Estimated Net Flows by Asset and Product Type – July 2023 (in bn EUR)

European Fund Flow Trends, July 2023

Source: LSEG Lipper

 

Asset Type Flows Year to Date

The flow pattern for July drove the estimated overall net flows to €72.9 bn year to date.

While mutual funds (-€13.0 bn) faced estimated net outflows, ETFs enjoyed inflows of €85.9 bn over the course of the first seven months of 2023. The inflows into ETFs within the positive, but still somewhat uncertain, market environment repeat a trend we witnessed over other periods with uncertain or rough market conditions such as the financial crisis, the euro crisis, or the second half of 2018, where ETFs enjoyed inflows while mutual funds faced massive outflows.

Despite the inverted yield curve for Eurozone bonds, European investors preferred bond over the first seven months of the year, 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 (+€50.7 bn) and money market funds (+€22.3 bn) enjoyed inflows for the year so far.

Taking a closer look, bond funds (+€111.3 bn) were the asset type with the highest estimated net inflows overall for 2023 so far. It is followed by money market funds (+€22.3 bn) and equity funds (+€11.7 bn). On the other hand, real estate funds (-€0.7 bn), “other” funds (-€1.6 bn). commodities funds (-€2.5 bn), alternative UCITS funds (-€13.6 bn), and mixed-assets funds (-€53.9 bn) faced outflows for the year to date.

Graph 2: Estimated Net Sales by Asset and Product Type, January 1 – July 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 (+€85.9 bn) were outpacing the flows into passively managed index mutual funds (+€22.3 bn) for the first seven months of 2023.

Graph 3: Estimated Net Flows by Management Approach and Product Type (January 1 – July 31, 2023)

European Fund Flow Trends, July 2023

Source: LSEG Lipper

More general, the trend toward passive products continued in Europe, since passive products (ETFs and index tracking mutual funds) have enjoyed inflows (+€108.3 bn) over the course of the 2023 so far, while actively managed mutual funds faced outflows (+€35.3 bn).

 

Fund Flows by Lipper Global Classifications, July 2023

When it comes to the overall estimated net sales for July, it was not surprising that Money Market EUR (+€9.7 bn) dominated the table of the 10 best-selling peer groups by estimated net flows for July. It was followed by Money Market USD (+€5.8 bn), Equity Global (+€3.6 bn), Target Maturity Bond EUR 2020+ (+€3.4 bn), and Bond GBP Government (+€2.6 bn).

Graph 4: Ten Best- and Worst-Selling Lipper Global Classifications by Estimated Net Sales, July 2023 (Euro Millions)

European Fund Flow Trends, July 2023

Source: LSEG Lipper

On the other side of the table, Mixed Asset EUR Aggressive – Global (-€2.6 bn) faced the highest estimated net outflows for July, bettered by Mixed Asset EUR Conservative – Global (-€2.5 bn) and Mixed Asset EUR Balanced – Global (-€2.4 bn).

A closer look at the best- and worst-selling Lipper Global Classifications for July 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 money market and bond classifications mainly in EUR and USD. In addition to this, they reduced mixed asset products, since these products may have been used to generate yield and income over the low interest rates period.

 

Fund Flows by Lipper Global Classifications, Year to Date

A closer look at the best- and worst-selling Lipper Global Classifications for the first seven 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 somewhat surprising that the table of the best-selling Lipper Global Classifications year to date was not dominated by bond classifications.

Equity Global (+€37.5 bn) was the best-selling peer group for the year so far. It was followed by Money Market EUR (+€35.1 bn), Target Maturity Bond 2020+ (+€34.0 bn), Money Market USD (+€27.7 bn), and Equity Emerging Markets Global (+€16.1 bn).

Graph 5: Ten Best- and Worst-Selling Lipper Global Classifications by Estimated Net Sales, January 1 – July 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 (-€51.4 bn) faced the highest outflows for the year so far. It was bettered by Mixed Asset GBP Balanced (-€16.5 bn), Mixed Asset EUR Flexible – Global (-€15.1 bn Mixed Asset EUR Conservative – Global (-€14.4 bn), and Bond EUR Short Term (-€10.9 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 outflows from Money Market GBP are the aftermath of the LDI crisis. It is also important to recall 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, July 2023

BlackRock (+€6.9 bn) was the best-selling fund promoter in Europe for July, ahead of HSBC (+€3.8 bn), Amundi (+€2.9 bn), Vanguard (+€2.7 bn), and Credit Mutuel (+€2.1 bn). Given the product ranges of the 10-top promoters and the overall fund flow trends, it was not surprising to see that ETFs played a significant role for the positions of the leading ETF promoter in Europe with a respective product offering.

Graph 6: Ten Best-Selling Fund Promoters in Europe, July 2023 (Euro Millions)

European Fund Flow Trends, July 2023

Source: LSEG Lipper

 

Fund Flows by Promoters, Year to Date

The largest fund promoter in Europe, BlackRock, (+€50.7 bn) is the best-selling fund promoter in Europe over the course of the year so far, ahead of JPMorgan (+€20.3 bn), Vanguard (+€18.8 bn), LGT Group (+€18.6 bn), and Swisscanto (+€14.0 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 – July 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.

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