Bond funds continue to suffer as equity fund AUM increases - European Funds Insight

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Bond funds continue to suffer as equity fund AUM increases

Net outflows persisted across all asset classes in the week ended March 25, with a net €68 billion redeemed. However, a bounce-back in equity markets meant that equity fund assets under management increased by 5% to $2.4 trillion within our weekly dataset. 

For the week ended March 25 the S&P 500 and MSCI World equity indices both increased by 10% and European equities were up 6%. US dollar-denominated credit was up 6%, euro and sterling-denominated credit were up 0.3% and 1.8%, respectively. 

Markets returned to positive territory following the announcement of the US government’s US$2 trillion stimulus programme which followed the Federal Reserve’s “QE infinity” plan announced previously. The Fed’s actions provided a buyer in a bond market that had all but stalled and allowed many fixed-income funds to meet redemption requests. This action fed through to equity markets as investor concerns about rising default rates were given some respite.

Redemptions persist despite the market bounce

Outflows from actively managed equity funds were still negative in the week ended March 25 at €8 billion, although strong equity fund returns contributed to an increase of €114 billion in equity funds AUM. Passive equity funds saw net inflows of €358 million juxtaposed by a €2 billion outflow out of equity ETFs. The ownership of passive mutual funds is skewed towards retail investors while ETFs in Europe are predominantly held by institutional investors.

Bond funds of all flavours continued to see outflows in the same week; active funds recorded redemptions of €39 billion (slightly lower than the previous week’s €47 billion outflow) while passive bond funds and ETFs experienced net outflows of €1.4 billion and €7 billion, respectively.

Mixed asset and alternatives also experienced large outflows—€11 billion and €10 billion, respectively. Redemptions from alternative funds also followed the wider market pattern with bond-focused alts experiencing higher outflows than equity alts.

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

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*Data as at March 25th 2020 sourced from ISS MI Simfund.

Sector Breakdown

Equity UK was the only sector to see a net inflow in the week ended March 25. Global equity, arguably the most popular equity sector in Europe in the last 3 years, again saw the highest weekly outflow.

Bond Emerging Market was the worst-selling sector with almost €6 billion of net outflows; the sector was closely followed by other bond sectors as nine other bond sectors saw an outflow of more than €1 billion.

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

*Data as at March 25th 2020  sourced from ISS MI Simfund.

Have we seen the bottom for fund outflows?

The return of volatility across all asset classes provides active managers with the opportunity to prove their worth and, with equity markets bouncing back and bond markets receiving central bank support, investors may reconsider selling or reducing their positions. Active equity funds returned on average 7% last week and may provide investors the quickest route to recouping the losses of the last few weeks as they reposition to invest through the pandemic.

If you have any further questions about this data or any other aspect of the European funds market please contact Plan For Life.