The European fund industry witnessed overall inflows over the course of November 2023. These inflows occurred in a further unstable market environment in which some asset classes nevertheless showed positive results while others performed negatively. That said, it seems like European investors moved from an overall cautious sentiment to a somewhat more positive sentiment, as equity and bond funds enjoyed inflows over the course of the month. These inflows might also be seen as an indicator that European investors preparing themselves for a year-end rally on the equity markets and lower interest rates over the course of the year 2024. This means the latter is driven by hopes that central banks—especially the U.S. Federal Reserve but also the European Central Bank and the Bank of England—may have reached the last phase of their fight against high and further increasing inflation rates and may, therefore, start to lower interest rates quite soon.
These estimates are under some scrutiny, however, even as the Fed seems to be more dovish than in the past. Nevertheless, the rate outlook includes fewer rate cuts in 2024 than some investors anticipated. Also, 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 long-term inverted yield curves, which are seen as an early indicator for a possible recession. The normalization of the inverted yield curves might be another short-term challenge for the bond markets.
That said, the inflows did not occur in all market segments. The promoters of mutual funds (+€22.0 bn), and the promoters of ETFs in Europe (+€17.8 bn) enjoyed inflows over the course of the month. The inflows for actively managed funds were driven by money market and bond products. The main drivers for the outflows from actively managed products were, as in September and October, equity, alternatives, and mixed-assets products.
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 (-€7.8 bn) faced outflows, while money market products (+€47.6 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 November 2023
In more detail, money market funds (+€47.6 bn) were the best-selling asset type overall for November 2023. The category was followed by bond funds (+€11.1 bn), equity funds (+€7.0 bn). On the other hand, “other” funds (-€0.1 bn), commodities funds (-€0.7 bn), real estate funds (-€1.8 bn), alternatives funds (-€3.7 bn), and mixed-assets funds (-€19.5 bn) faced outflows.
Graph 1: Estimated Net Flows by Asset and Product Type – November 2023 (in bn EUR)
Source: LSEG Lipper
Asset Type Flows Year to Date
The flow pattern for November drove the estimated overall net flows up to €100.8 bn year to date.
While mutual funds (-€36.8 bn) faced estimated net outflows, ETFs enjoyed inflows of €137.6 bn over the course of the first 11 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. Nevertheless, this flow pattern is unusual in a market environment were equity and bond indices trending upwards.
With regards to the inverted yield curves for the Eurozone and other major economies in the world, it is no surprise that European investors favoured money market products over the first 11 months of the year. The strong inflows into bond products might be seen as a sign that European investors may anticipate the ending of the interest hiking cycle of central banks around the globe led by the U.S. Federal Reserve.
Overall, long-term investment products (-€33.0 bn) faced outflows, while money market funds (+€133.8 bn) enjoyed inflows for the year so far.
Taking a closer look, money market funds (+€133.8 bn) were the asset type with the highest estimated net inflows overall for 2023 to date. It is followed by bond funds (+€121.7 bn) and “other” funds (+€0.8 bn). On the other hand, real estate funds (-€0.2 bn), commodities funds (-€3.3 bn), equity funds (-€10.9 bn), alternatives funds (-€29.1 bn), and mixed-assets funds (-€112.0 bn) faced outflows for the year to date.
Graph 2: Estimated Net Sales by Asset and Product Type, January 1 – November 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 (+€137.6 bn) were outpacing the flows into passively managed index mutual funds (+€41.9 bn) and actively managed mutual funds (-€78.8 bn) for the first 11 months of 2023.
Graph 3: Estimated Net Flows by Management Approach and Product Type (January 1 – November 30, 2023)
Source: LSEG Lipper
In more detail, ETFs have witnessed inflows of €137.6 bn over the course of the first 11 months of 2023. These flows are already well above the level of the full year flows for 2019 (+€106.7 bn). Even as the record inflows of the year 2021 (+€161.4 bn) seem to be somewhat out of reach, 2023 will be considered as a very strong year for the European ETF industry.
Conversely, actively managed long-term mutual funds (including index tracking mutual funds) faced outflows (-€202.7 bn). That said, the inflows into money market products (+€123.4 bn) brought the overall outflows from actively managed funds down (-€78.8 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, I would not totally agree with this assumption.
In addition, one needs to bear in mind that the flows in money market products are 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.
Fund Flows by Lipper Global Classifications, November 2023
Given the unstable economic outlooks and the inverted yield curves, it was not surprising that Money Markey USD (+€28.6 bn) dominated the table of the 10 best-selling peer groups by estimated net flows for November. It was followed by Money Market EUR (+€19.0 bn), Equity Global (+€8.3 bn), Equity US (+€7.8 bn), and Target Maturity Bond EUR 2020+ (+€6.7 bn).
Graph 4: Ten Best- and Worst-Selling Lipper Global Classifications by Estimated Net Sales, November 2023 (Euro Millions)
Source: LSEG Lipper
On the other side of the table, Mixed Asset EUR Conservative – Global (-€4.1 bn) faced the highest estimated net outflows for November, bettered by Mixed Asset EUR Flexible – Global (-€3.7 bn) and Mixed Asset EUR Balanced – Global (-€3.0 bn).
A closer look at the best- and worst-selling Lipper Global Classifications for November 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. 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 11 months of 2023 shows that European investors are somewhat in a mixed mood with regard to their risk appetite since money market products 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 money market 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 (+€97.1 bn) was the best-selling peer group for the year so far. It was followed by Money Market EUR (+€78.1 bn), Target Maturity 2020+ (+€54.2 bn), Equity Global (+€51.5 bn), and Bond EUR Corporates (+€19.5 bn).
Graph 5: Ten Best- and Worst-Selling Lipper Global Classifications by Estimated Net Sales, January 1 – November 30, 2023 (Euro Billions)
Source: LSEG Lipper
Given the current market environment it was not surprising to see so many mixed-assets classifications on the opposite side of the table since European investors seem to be readjusting their portfolios to the new market environment after the central banks around the globe may end their interest rate hiking cycles. Money Market GBP (-€55.1 bn) faced the highest outflows for the year so far. It was bettered by Mixed Asset EUR Conservative – Global (-€26.3 bn), Mixed Asset EUR Flexible – Global (-€23.2 bn), Mixed Asset GBP Balanced (-€23.0 bn), and Mixed Asset EUR Balanced – Global (-€18.8 bn).
As mentioned above, 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, November 2023
BlackRock (+€23.6 bn) was the best-selling fund promoter in Europe for November, ahead of JPMorgan (+€8.7 bn), State Street Global Advisors (+€6.2 bn), HSBC (+€5.7 bn), and Goldman Sachs (+€5.1 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 only a major role for the positions of State Street Global Advisors and DWS.
Graph 6: Ten Best-Selling Fund Promoters in Europe, November 2023 (Euro Millions)
Source: LSEG Lipper
Fund Flows by Promoters, Year to Date
The largest fund promoter in Europe, BlackRock, (+€96.4 bn) is also the best-selling fund promoter in Europe over the course of the year so far, ahead of JPMorgan (+€34.3 bn), HSBC (+€28.1 bn), Vanguard (+€25.4 bn), and State Street Global Advisors (+€18.6 bn). As for the monthly flows, it was not surprising to see that ETFs played a major role for the inflows and the respective league table positions of BlackRock, Vanguard, State Street Global Advisors, DWS, and BNP Paribas.
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 – November 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.
