The European fund industry witnessed overall outflows over the course of September 2023. These outflows occurred in a further unstable market environment in which some asset classes nevertheless showed positive results while others performed negatively. The market sentiment was still driven by hopes that central banks—especially the U.S. Federal Reserve—may have reached the last phase of its fight against high and further increasing inflation rates and may, therefore, start to keep interest rates at least stable quite soon. Some investors already think there might be room for decreasing interest rates later this year, which might be reflected by the estimated inflows in bond ETFs.
Nevertheless, these estimates are under scrutiny since the Fed stated after its September meeting a hawkish view, as the rate outlook still includes one more rate move this year and fewer rate cuts in 2024. In addition, there are still some concerns about geopolitical tensions and the continuing normalization of disrupted delivery chains, as well as the continued possibility of 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.
It is noteworthy that market participants are already looking at the possibility of a government shutdown in the U.S. in November.
That said, the outflows did not occur in all market segments. The promoters of mutual funds faced outflows (-€29.1 bn), while the promoters of ETFs in Europe (+€9.1 bn) enjoyed inflows over the course of the month. The outflows for actively managed funds were driven by outflows from equity and mixed-assets products, while bond products enjoyed slight inflows. Within the current market environment, it is not surprising that European investors bought further into money market products since the Eurozone and other major economies have an inverted yield curve. This means that money market products offer a higher yield than medium or long-term bonds. More generally, long-term funds (-€21.3 bn) faced outflows, while money market products (+€1.4 bn) enjoyed inflows for the month. These flow numbers might indicate that European investors are further readjusting their portfolios to the current market environment.
Asset Type Flows September 2023
In more detail, bond funds (+€2.3 bn) were the best-selling asset type overall for September 2023. The category was followed by money market funds (+€1.4 bn) and commodities funds (+€0.1 bn). On the other hand, “other” funds (-€0.1 bn), real estate funds (-€0.1 bn), alternatives funds (-€3.2 bn), equity funds (-€6.2 bn), and mixed-assets funds (-€13.3 bn) faced outflows.
Graph 1: Estimated Net Flows by Asset and Product Type – September 2023 (in bn EUR)
Source: LSEG Lipper
Asset Type Flows Year to Date
The flow pattern for September drove the estimated overall net flows down to €67.9 bn year to date.
While mutual funds (-€36.6 bn) faced estimated net outflows, ETFs enjoyed inflows of €104.5 bn over the course of the first nine months of 2023. The inflows into ETFs within the still somewhat uncertain market environment repeat a trend we saw over other periods with uncertain or rough market conditions. These periods include the financial crisis, the euro crisis, and the second half of 2018—where ETFs enjoyed inflows while mutual funds faced massive outflows.
Despite the inverted yield curve for the Eurozone and other major economies in the world, European investors preferred bonds over the first nine 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 (+€23.2 bn) and money market funds (+€44.7 bn) enjoyed inflows for the year so far.
Taking a closer look, bond funds (+€111.7 bn) were the asset type with the highest estimated net inflows overall for 2023 to date. It is followed by money market funds (+€43.4 bn), equity funds (+€10.8 bn), real estate funds (+€1.6 bn), and “other” funds (+€1.3 bn). On the other hand, commodities funds (-€2.5 bn), alternative UCITS funds (-€16.8 bn), and mixed-assets funds (-€59.9 bn) faced outflows for the year to date.
Graph 2: Estimated Net Sales by Asset and Product Type, January 1 – September 30, 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 (+€104.5 bn) were outpacing the flows into passively managed index mutual funds (+€33.0 bn) for the first nine months of 2023.
Graph 3: Estimated Net Flows by Management Approach and Product Type (January 1 – September 30, 2023)
Source: LSEG Lipper
More generally, the trend toward passive products continued in Europe. Passive products (ETFs and index-tracking mutual funds) have enjoyed inflows (+€137.5 bn) over the course of 2023 so far, while actively managed mutual funds faced outflows (+€69.6 bn).
In more detail, ETFs have witnessed inflows of €104.5 bn over the course of the first nine months of 2023. These flows are already on the level of the full year flows of 2019 (+€106.7 bn). Even as the record inflows of the year 2021 (+€161.4 bn) seem still to be out of reach, 2023 will be considered as a very strong year for the European ETF industry.
Conversely, actively managed long-term mutual funds faced outflows (+€106.8 bn). That said, the inflows into money market products (+€37.2 bn) brought the overall outflows from actively managed funds down (to +€69.6 bn).
Some market observers may speculate that European investors are selling actively managed products and buying back passive products. Generally speaking, one could agree with this thesis by looking at the high-level numbers, but as this can’t be proven by facts, so I would not totally agree with this assumption.
Fund Flows by Lipper Global Classifications, September 2023
Given the unstable economic outlooks and the inverted yield curves, it was not surprising that Money Markey USD (+€11.9 bn) dominated the table of the 10 best-selling peer groups by estimated net flows for September. It was followed by Equity Global (+€5.5 bn), Target Maturity Bond 2020+ (+€3.5 bn), Equity US (+€3.5 bn), and Mixed Asset GBP Aggressive (+€1.2 bn).
Graph 4: Ten Best- and Worst-Selling Lipper Global Classifications by Estimated Net Sales, September 2023 (Euro Millions)
Source: LSEG Lipper
On the other side of the table, Money Market EUR (-€9.4 bn) faced the highest estimated net outflows for September, bettered by Mixed Asset ER Conservative-Global (-€2.9 bn) and Mixed Asset EUR Flexible-Global (-€2.5 bn).
A closer look at the best- and worst-selling Lipper Global Classifications for September shows that European investors were somewhat in mixed mode with regard to their risk appetite over the course of the month. On one hand, European investors increased their positions in money market and bond classifications mainly in EUR and USD, as well as their equity exposure in some regions and sectors. On the other hand, they reduced their exposure to global/regional/single emerging markets equity products, as well as to mixed asset products (mainly in EUR) 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 nine months of 2023 shows that European investors are somewhat in a mixed mode with regard to their risk appetite since Money Market USD 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 is dominated by bond and money market classifications.
Money Market USD (+€61.7 bn) was the best-selling peer group for the year so far. It was followed by Equity Global (+€45.8 bn), Target Maturity 2020+ (+€37.8 bn), Money Market EUR (+€28.3 bn), and Mixed Asset GBP Aggressive (+€14.3 bn).
Graph 5: Ten Best- and Worst-Selling Lipper Global Classifications by Estimated Net Sales, January 1 – September 30, 2023 (Euro Billions)
Source: LSEG Lipper
Given the current market environment it was not surprising to see so many different classifications on the opposite side of the table since European investors seem to be readjusting their portfolios to the new market environment. Money Market GBP (-€61.3 bn) faced the highest outflows for the year so far. It was bettered by Mixed Asset GBP Balanced (-€21.1 bn), Mixed Asset EUR Conservative-Global (-€18.7 bn), Mixed Asset EUR Flexible-Global (-€15.5 bn), and Equity UK (-€12.9 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, September 2023
BlackRock (+€11.7 bn) was the best-selling fund promoter in Europe for September, ahead of Amundi (+€3.9 bn), M&G Investments (+€3.3 bn), Vanguard (+€2.7 bn), and Legal & General (+€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 played only a minor role for the positions of the leading fund promoters in Europe with a respective product offering.
Graph 6: Ten Best-Selling Fund Promoters in Europe, September 2023 (Euro Millions)
Source: LSEG Lipper
Fund Flows by Promoters, Year to Date
The largest fund promoter in Europe, BlackRock, (+€66.0 bn) is also the best-selling fund promoter in Europe over the course of the year so far, ahead of Vanguard (+€22.8 bn), JPMorgan (+€18.6 bn), HSBC (+€17.2 bn), and LGT Group (+€16.5 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 – September 30, 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.
