European fund managers receive respite from outflows as risk appetite returns - European Funds Insight

European fund managers receive respite from outflows as risk appetite returns

European investors returned to risk assets in the week ended April 1 with equities and real estate funds experiencing inflows while bond funds and alternatives continued to see outflows.

Redemptions from European fund managers fell sharply from the record high weekly outflows reported recently with a €4 billion net sales outflow in the week ended April 1. Equity and real estate funds saw net inflows of €6.5 billion and €364 million, respectively [1]. Assets under management within our weekly dataset also increased by 2% to €7 trillion [2]. Bond and mixed asset funds continued to see outflows in the week ended April 1, but at a much more manageable €4 billion and €874 million, respectively. Alternative funds experienced the highest outflows of the week ended April 1 at €5 billion as bond and multi-strategy absolute return funds saw net redemptions of €2 billion each. 

Passive equity funds and ETFs saw net inflows of €3 billion and €1 billion, respectively. The trend was mixed for fixed income with passive bond funds experiencing an outflow of €781 million while bond ETFs saw an inflow of €920 million.

Have we seen the bottom?

The Covid-19 crisis has provided a triple whammy of a financial crisis, health crisis and oil price collapse. Although this is a very different crisis to 2008, one similarity we can draw on is asset price inflation resulting from massive central bank intervention and government financial stimulus. Major equity markets around the world have seen double digit returns since stimulus packages were announced to April 1 – the S&P 500 was up around 10%, Euro Stoxx 50 up 12% and FTSE 100 up 14% - a trend that was continuing at the time of writing. With companies cancelling dividends and stock buybacks, unemployment claims rising and many businesses around the world in precarious positions the trajectory of future investment returns is far from clear, but we may be seeing markets reacting to an expected recovery faster than the real economy.

Figure 1: Outflows Persist from European Funds (Weekly Data, In Billions of €)

*Data as at April 1st 2020 sourced from ISS MI Simfund.

Sector Breakdown

Risk assets saw a return to net inflows in the week ended April 1. Equity Global led the way with a €3 billion inflow, but we also note positive net inflows into high yield bonds and aggressive mixed-asset funds. 

*Tables do not add up to 100% due to some sectors being removed.

*Data as at April 1st 2020 sourced from ISS MI Simfund.

Are positive fund flows here to stay?

European investors have seemingly found their risk appetite with equities and high yield bonds topping sales flows tables. But there are two dynamics at play in retail fund investing – regular savers who contribute regardless of market conditions, and professional retail investors, such as model portfolios, fund of funds and discretionary managers, who invest according to market conditions. The small equity fund inflows this week may be due to regular savers that have not changed their regular asset allocation.

[1] Sales inflows were observed in equity based real estate funds, not bricks and mortar funds which have seen widespread suspensions.

[2] Dataset coverage is around 85% of the European funds market.