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May 17, 2024

Friday Facts: European Fund Flow Trends Report, April 2024

by Detlef Glow.

The European fund industry enjoyed general inflows over the course of April 2024. These inflows occurred in a further unstable market environment since the geopolitical tensions in Middle East increased over the course of the month. Especially the developments around the Red Sea may impact the economies in western countries since a number of shipping companies these days avoid the passage of the Suez channel. It is, therefore, to be expected that the prolonged delivery times will cause some tensions for the still vulnerable delivery chains.

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 over the first quarter of 2024 about a possible start of lowering interest rates might have caught some investors on the wrong foot, as the central bank indicated that it may start the lowering of interest rates later and with less steps in 2024 than some investors expected. These statements might have impacted the estimated net flows in bond and money market 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.

Asset Type Flows

Mutual funds (+€15.7 bn) and ETFs (+€11.4 bn) enjoyed inflows for the month. This flow pattern led to overall estimated net inflows of €27.1 bn over the course of April 2024.

 

Asset Type Flows April 2024

In more detail, bond funds (+€21.8 bn) were the best-selling asset type overall for April 2024. The category was followed by money market funds (+€20.6 bn), commodities funds (+€0.3 bn), and real estate funds (+€0.1 bn), while ”other” funds (-€0.02 bn), alternatives funds (-€0.3 bn), mixed-assets funds (-€7.1 bn), and equity funds (-€8.3 bn) faced outflows.

Graph 1: Estimated Net Flows by Asset and Product Type – April 2024 (in bn EUR)

European Fund Flow Trends Report, April 2024

Source: LSEG Lipper

 

Asset Type Flows Year to Date

The flow pattern for April drove the estimated overall net flows in the European fund industry up to €96.0 bn for the year 2024.

Mutual funds (+€36.5 bn) and ETFs (+€59.5 bn) enjoyed inflows over the course of the year 2024 so far. These inflows within the still somewhat uncertain market environment are not considered unusual given the fact that some major market indices have reached new all-time highs.

With regard to the inverted yield curves for the Eurozone and other major economies in the world, it is somewhat surprising that European investors favored bond products over the course of the year. These inflows into bonds 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 ECB rather sooner than later. That said, the U.S. Federal Reserve seemed to postpone its first interest rate cut because the inflation rate for March was higher than expected.

Overall, long-term investment products (+€51.8 bn) and money market funds (+€44.1 bn) enjoyed inflows for the year so far. That said, the estimated net flows for long-term products were, with the exception of bond funds, dominated by the inflows into ETFs.

Taking a closer look, bond funds (+€112.1 bn) were the asset type with the highest estimated net inflows overall for 2024 so far. It is followed by money market funds (+€44.1 bn), and commodities funds (+€0.3 bn). On the other side of the table, “other” funds (-€0.02 bn), real estate funds (-€5.7 bn), equity funds (-€7.0 bn), alternatives funds (-€7.6 bn), and mixed-assets funds (-€40.4 bn) faced outflows for the year so far.

Graph 2: Estimated Net Sales by Asset and Product Type, January 1 – April 30, 2024 (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 (+€59.5 bn) were outpacing the flows into passive index mutual funds (+€20.9 bn) by a large margin. Conversely, actively managed long-term mutual funds faced outflows (-€22.8 bn) for the first four months of 2024.

Graph 3: Estimated Net Flows by Management Approach and Product Type (January 1 – April 30, 2024)

Source: LSEG Lipper

 

Some market observers may speculate that European investors are selling actively managed products and buying back passive products, especially within the Lipper global classification Equity U.S. 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 Lipper Global Classifications

Fund Flows by Lipper Global Classifications, April 2024

Given the unstable economic outlooks and the inverted yield curves, it was not surprising that Money Market EUR (+€21.2 bn) dominated the table of the 10 best-selling peer groups by estimated net flows for April. It was followed by Bond Global USD (+€4.7 bn), Target Maturity Bond 2020+ (+€4.7 bn), Bond EUR Short Term (+€1.7 bn), and Equity U.S. (+€1.7 bn).

Graph 4: Ten Best- and Worst Lipper Global Classifications by Estimated Net Sales, April 2024 (Euro Billions)

European Fund Flow Trends Report, April 2024

Source: LSEG Lipper

On the other side of the table, Equity Europe (-€3.2 bn) faced the highest estimated net outflows for April, bettered by Mixed Asset EUR Flexible – Global (-€2.5 bn) and Equity Emerging Markets Global (-€2.4 bn).

A closer look at the best and worst Lipper Global Classifications by estimated net sales for April shows that European investors were somewhat in risk-off mode with regard to their risk appetite over the course of the month. On one hand, European investors increased their positions in bond and money market classifications mainly in EUR. On the other hand, they further reduced their exposure to mixed-assets products in EUR since these products may have been used to generate yield and income over the low interest rates period. In addition, European investors seem to readjust their portfolios further by reducing satellite positions.

 

Fund Flows by Lipper Global Classifications, Year to Date

A closer look at the best and worst Lipper Global Classifications by estimated net sales for the first four months of 2024 also shows that European investors are somewhat in a risk-off mood with regard to their risk appetite since bond classifications are dominating 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 2024 so far, while bond products enjoyed the highest estimated net inflows. Given the overall trend it was not surprising that the table of the best-selling Lipper Global Classifications is dominated by bond classifications, while mixed-asset classifications dominated the other side of the table.

Money Market EUR (+€48.9 bn) was the best-selling Lipper global classification for the year so far. It was followed by Bond Global USD (+€22.1 bn), Target Maturity Bond 2020+ (+€21.7 bn), Equity Global (+€20.1 bn), and Equity U.S. (+€12.4 bn).

Graph 5: Ten Best- and Worst Lipper Global Classifications by Estimated Net Sales, January 1 – April 30, 2024 (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 environment in the bond markets after the central banks around the globe may end their interest rate hiking cycles over the course of 2024. Money Market USD (-€11.3 bn) faced the highest outflows for the year so far. It was bettered by Equity Europe (-€11.2 bn), Mixed Asset EUR Flexible – Global (-€10.3 bn), Mixed Asset EUR Conservative – Global (-€8.6 bn), and Equity Asia Pacific ex Japan (-€7.8 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, 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

Fund Flows by Promoters, April 2024

BlackRock (+€6.4 bn) was the best-selling fund promoter in Europe for April, ahead of Credit Mutuel AM (+€5.7 bn), Vanguard (+€5.5 bn), Amundi (+€4.3 bn), and HSBC (+€3.6 bn). Given the product ranges of the 10-top promoters and the overall fund flow trends, it was somewhat surprising to see that ETFs didn’t play a more important role for the positions of the leading fund promoters in Europe.

Graph 6: Ten Best-Selling Fund Promoters in Europe, April 2024 (Euro Millions)

European Fund Flow Trends Report, April 2024 

Source: LSEG Lipper

 

Fund Flows by Promoters, Year to Date

HSBC (+€18.2 bn) is the best-selling fund promoter in Europe over the course of the year so far, ahead of BlackRock (+€15.4 bn), Amundi (+€13.4 bn), Vanguard (+€13.2 bn), and DWS (+€10.3 bn). Opposite to 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 the leading fund promoter in Europe, especially for BlackRock, Vanguard, DWS, and State Street Global Advisors which all enjoyed higher inflows into ETFs than into their mutual funds.

Graph 7: Ten Best-Selling Fund Promoters in Europe, January 1 – April 30, 2024 (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 Lipper or LSEG.

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