European investors poured €3.8bn into European, US and Japanese equity funds combined in May. This is only roughly half the amount invested in developed equity funds in April. During that month, inflows totalled €7.1bn. The less abundant fund flows coincide with fund selector sentiment regarding European equities cooling down significantly. While approximately six in ten European fund selectors expected to increase their allocation to European equities in the beginning of this year, this has come down to about 40% now (see graph).
European small caps out of favour
Compared to April, inflows to all three main developed equity categories fell. European equity fund flows showed the largest decline, from €3.7bn to €1.1bn. This was mainly due to markedly lower flows into small cap equity, which even recorded net outflows over the month. European Income funds were the only category managing to keep inflows on a stable footing.
US large cap flows keep up
Net inflows into US equity funds decreased from the previous month, but surpassed those into European equities for the first time since July last year. Net outflows, all stronger than a month earlier, were recorded for US small- and midcaps and for US large cap growth funds. Still, US equity funds enjoyed net inflows worth €2.8bn, with most of that attributed to US large cap value funds. While European fund selectors do not have a clear preference for US large caps over small caps, they indeed do prefer value over growth stocks according to EIE data.
Japan downward track
Inflows into Japanese equity funds decreased for a fourth consecutive month to a mere €100m in May. This trend, just as it is the case with European equities, goes hand in hand with worsening fund selector sentiment versus the asset class. The percentage of non-users and Japan bears alike has gone up markedly during the first half of this year, with now only 13% of Europe’s fund selectors increasing exposure to Japanese equities and almost half of them will decrease their allocation or is not using the asset class.
The data for the EIE Historic Fund Flows Database are provided by Morningstar.