European fund flows turn positive following five weeks of outflows - European Funds Insight

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As financial markets continue to benefit from government and central bank stimulus, European fund flows turned positive in the week ended April 8 with €4 billion in net sales inflows. Fund investors continued to reduce exposure to European bonds, instead, allocating available resources to US dollar and sterling bond funds.

Equity funds contributed the most to net sales with an inflow of €5 billion. Global Equity funds recorded the largest net inflow at €3 billion, once again becoming the most popular sector in Europe in terms of net sales flows. In a trend that is, perhaps, a reaction to the current lockdown situation, Healthcare and Tech focused equity funds saw significant inflows with €1 billion invested in funds following those sectors.

Bond funds saw a small net inflow of €526 million for the week ended April 8. Following the US Federal Reserve’s announcement that it will buy bonds across the entire fixed income spectrum, including sub-investment grade, European investors contributed to funds that will benefit from the government backstop; both USD Bond and High Yield funds saw net inflows in excess of €1 billion. Emerging Market Bonds continued to be the least popular sector with that fund category experiencing a €1.2 billion outflow.

Alternatives continued to see the highest outflows with €2.3 billion redeemed in the week ended April 8. This follows outflows in previous three weeks of €5.5 billion, €10 billion and €4 billion. Credit and Debt focused alternative funds again saw the highest outflows at €1.6 billion.

Net sales into ETFs was €3 billion in the week ended April 8 with all asset classes taking in investor money (active and passive mutual funds have seen outflows from bond funds). Equity ETFs achieved net sales of €1.2 billion in the seven days to April 8. Gold ETPs reported net sales of €731 million, which followed a €1.2 billion inflow in the previous week. Passive mutual funds experienced net sales of €1.8 billion; €2 billion was invested into equity passives but other asset classes saw outflows. 

Figure 1: Outflows Turn Positive Across All Asset Classes Except Alternatives (Weekly Data, In Billions of €)

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*Data as at April 8th 2020 sourced from ISS MI Simfund.

Sector Breakdown

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

*Data as at April 8th 2020 sourced from ISS MI Simfund.

The EU’s slow reaction may direct fund flows away from Europe

Europe has been hit badly by COVID-19 and, as in previous euro crises, without a cohesive response by EU member states investors may turn their attentions elsewhere. There is some evidence of this in the tables above with investors preferring US dollar and sterling bond funds. 

Further to the many problems COVID-19 presents is the matter of Brexit - talks have stalled and the transition period has not yet been extended beyond the end of the year. This may affect asset managers’ Brexit plans and their ability to market and sell products across borders – this is possibly an important factor in firms recovering lost AUM.