Third worst month in outflows - European Fund Insights

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European investors redeemed a total of €250 billion from mutual funds in March 2020 in reaction to the economic and financial disruption caused by the Covid-19 crisis. In absolute terms, this is the largest monthly outflow experienced by the European funds industry; the previous record was October 2008 when net sales outflows reached €174 billion. Outflows as a share of AUM were 2.7% in March this year, the third-worst month by this measure; October 2008 remains the worst month on record when 4.8% of AUM was redeemed. 

Unlike in 2008, when the industry suffered outflows in 10 out of 12 months, net sales turned positive in April 2020; our weekly dataset shows an €18 billion inflow for the European funds market. Furthermore, due to relatively high net sales in January and February, the industry lost only 1.6% of assets to client redemptions in the year-to-date ended April 2020.

Fixed Income Investors Prove to be Flighty

Having been the most popular asset class in recent years, fixed-income funds suffered the largest outflow in March 2020 with €139 billion redeemed. In comparison equity and mixed asset funds saw a net sales outflow of €47 billion and €38 billion respectively. All asset classes, except alternatives, recorded a return to positive sales flows in April with sales into fixed-income funds totalling €12.5 billion, equity funds €9 billion and mixed asset €1.7 billion.

Figure 1: Positive April Sales Flows Quash Comparisons to 2008 (Weekly Data, In Billions of €)

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*Data as at April 29th 2020 sourced from ISS MI Simfund.

Sector Breakdown

Bonds were the best-selling asset class for the second week running with sectors that have highest allocation to US dollar bonds topping the table – Global, High Yield and US bonds. The recovery in equity funds continued to be focused on tech, healthcare and energy funds, as well as global equity funds which have a high allocation to US tech companies.

European ETFs saw a net inflow of €1.7 billion for the week ended April 29. An outflow of €1.1 billion from equity ETF products partially offset an inflow of €2.6 billion into fixed income ETFs. Sales into Oil focused ETPs were €827 million as investors continued to bet on a recovery in the price of oil.

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

*Data as at April 29th 2020 sourced from ISS MI Simfund.

A Strong April Shows This Is Not a Re-Run of 2008 

March was the worst month on record for European funds with €250 billion in net redemptions, but April inflows of €18 billion are the highest April sales flow since 2017. Financial markets are a different animal than in 2008, and we frequently see larger drawdowns and quicker recoveries than in previous periods. Indeed, April saw the highest monthly equity market returns since 1987.

The rise of passive investing may be a contributing factor as investors can hedge market exposure and don’t have to sell positions for protection. This provides some confidence that the industry can bounce back quicker than in 2008.