The European fund industry enjoyed healthy inflows over the course of January 2024. These inflows occurred in a further unstable market environment since the geopolitical tensions in Middle East, especially the Red Sea, increased over the course of the month and impacts from prolonged delivery times caused by the fact that shipping companies avoid the Suez channel as they don’t want their ships to be targets for the Houthi rebels.
Nevertheless, some asset classes showed positive results while others performed negatively. Market sentiment was further driven by hopes that central banks—especially the U.S. Federal Reserve—have reached the last phase of their fight against high and further increasing inflation rates given their rather dovish statements during/after the respective central bank meetings.
That said the statements from the U.S. Fed in January about a possible start of lowering interest rates might have caught some investors on the wrong foot, as the central bank indicated that they may start the lowering of interest rates later and with less steps in 2024 than some investors expected. This statement might have impacted the estimated inflows in bond ETFs.
In addition, some investors may have also reviewed their expectations for bonds, as there is the risk that the inflation in the major economies might be more sticky than expected and central banks are held responsible to reach their inflation targets. In addition, there are still some concerns about the possibility of a recession in the U.S. and other major economies around the globe. These fears have been raised by a lack of growth in some economies and the long-term inverted yield curves, which are seen as an early indicator for a possible recession. The normalization of inverted yield curves might be another short-term challenge for the bond markets.
On the other hand, the performance of six of the so-called Magnificent Seven (Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla) drove the U.S. markets up (the only exception was Tesla). The stellar performance of these stocks may remind some investors of the performance of some stocks before the burst of the so-called “dot.com bubble.” As a result, many investors might have been caught between fear and greed when looking at the U.S. equity markets. That said, some major equity indices reached new all-time high values over the course of January 2024.
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 (+€15.3 bn) and money market products (+€28.2 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 January 2024
Mutual funds (+€22.5 bn) and ETFs (+€21.0 bn) enjoyed overall inflows of €43.5 bn over the course of January 2024.
In more detail, bond funds (+€29.7 bn) were the best-selling asset type overall for January 2024. The category was followed by money market funds (+€28.2 bn), equity funds (+€2.5 bn), commodities funds (+€0.04 bn), and “other” funds (+€0.03 bn), while real estate funds (-€1.8 bn), alternatives funds (-€3.6 bn), and mixed-assets funds (-€11.7 bn) faced outflows.
Graph 1: Estimated Net Flows by Asset and Product Type – January 2024 (in bn EUR)
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 (+€21.0 bn) were outpacing the flows into passive index mutual funds (+€8.0 bn) by a large margin. As a result, actively managed mutual funds enjoyed inflows (+€14.4 bn) for 2024 so far.
Graph 2: Estimated Net Flows by Management Approach and Product Type (January 1 – January 31, 2024)
Source: LSEG Lipper
In more detail, since actively managed mutual funds started the year with estimated net inflows, the promoters of these products may hope that January may mark the month in which the trend with outflows from actively managed mutual funds has been reversed. That said, the flow numbers by asset type do show that the flows into money market products above the overall flows into mutual funds. This means that the inflows into bond funds were offset by the outflows from equity and mixed-assets mutual funds. With regard to this, it can be concluded that the flow numbers for January 2024 did continue the overall fund flows trend from 2023.
Some market observers may speculate that European investors are selling actively managed equity funds and buying back passive products. Generally speaking, one could agree with this thesis by looking at the high-level numbers, but since 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. Given the inverted yield curves, it can be assumed that a number of investors use money market products as replacement for cash accounts since money market products offer a comparably high yield within the current interest rate environment. Therefore, it can be expected that the inflows in money market products may revert once the yield curves have been normalized.
Fund Flows by SFDR Article
Mutual funds and ETFs classified under article 6 of the sustainable finance disclosure regulation (SFDR) enjoyed the highest inflows (+€21.3 bn) for January 2024, followed by products under article 8 of SFDR (+€19.0 bn) and products which had not reported their SFDR status (+€6.5 bn). Conversely, products classified under article 9 witnessed outflows for the month (-€3.2 bn).
Graph 3: Estimated Net Flows by SFDR Article (January 1 – January 31, 2024)
Source: LSEG Lipper
One may wonder why there are mutual funds and ETFs which do not disclose their SFDR status, but since this report covers the whole of Europe which means that the report covers also jurisdictions which do not fall under the SFDR.
Fund Flows by Lipper Global Classifications, January 2024
Given the unstable economic outlooks and the inverted yield curves, it was not surprising that Money Markey USD (+€11.2 bn) dominated the table of the 10 best-selling peer groups by estimated net flows for January. It was followed by Money Market EUR (+€10.6 bn), Bond Global USD (+€6.2 bn), Equity Global (+€6.0 bn), and Bond EUR Corporates (+€4.3 bn).
Graph 4: Ten Best- and Worst-Selling Lipper Global Classifications by Estimated Net Sales, January 2024 (Euro Millions)
Source: LSEG Lipper
On the other side of the table, Mixed Asset EUR Balanced – Global (-€2.6 bn) faced the highest estimated net outflows for January, bettered by Mixed Asset EUR Flexible – Global (-€2.5 bn) and Equity Europe (-€2.4 bn).
A closer look at the best- and worst-selling Lipper Global Classifications for January 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 core regions. On the other hand, they reduced their exposure to mixed-assets products (mainly in EUR). That said, the reduction of mixed-assets products might be caused by the increased interest rates, since mixed-assets products may have been used to generate yield and income over the low interest rates period.
Fund Flows by Promoters, January 2024
BlackRock (+€7.3 bn) was the best-selling fund promoter in Europe for January, ahead of HSBC (+€6.7 bn), JPMorgan (+€6.5 bn), AXA Investment Managers (+€4.3 bn), and BNP Paribas (+€4.0 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 BlackRock, JPMorgan, DWS, and Vanguard.
Graph 5: Ten Best-Selling Fund Promoters in Europe, January 2024 (Euro Millions)
Source: LSEG Lipper
