European fund flows have dropped precipitously in the first six months of the year as markets grapple with rising political uncertainty and a surge in volatility.
Total fund sales to 30 June reached €59.8bn – about six times lower than €362.4bn first-half sales in 2017, according to Thomson Reuters Lipper.
Total full year sales in 2017 was €756.8bn.
“Not every year can be a record year,” said Detlef Glow, head of Lipper EMEA research at Thompson Reuters.
“The political situation in Italy and elsewhere has fuelled uncertainty and markets hate uncertainty.”
Bond fund outflows
Bond funds have borne the brunt of outflows as investors weigh up the impact of rising interest rates.
Overall, bond funds saw outflows of €16.3bn in the first six months of 2018, led by outflows of €20.5bn from fixed income mutual funds.
However, these outflows were balanced by €4.2bn inflows into fixed income ETFs. The rise in volatility and uncertainty may be behind the divergence, Glow said.
“In a rising interest rate environment, you might not expect to see inflows into plain vanilla beta index-tracking products,” Glow added, as investors look to unconstrained or absolute return bond funds to minimise risks.
But in a shaky market environment there is increased demand for products that investors can sell in minutes if they need to. ETFs provide that flexibility.
38% of overall fund flows YTD have been into ETFs – which is higher than all previous years.
Equity flows mixed
Despite the rise in volatility and political uncertainty, equity funds remained among the best-selling asset classes in Europe in the first six months of 2018, according to Thomson Reuters Lipper.
Equity fund sales reached €30.4bn in Europe to end-June.
“European investors are known to be cautious and given the market environment for 2018 it is a little bit surprising,” said Detlef Glow, head of Lipper EMEA research at Thompson Reuters.
Equity flows have been led by sales of US equity-focused funds, as well as equity global.
European equities, however, saw outflows of €6.4bn.
After a positive start to the year, investor sentiment in Europe has been punctured by the election of a populist Eurosceptic government in Italy and an unexpected fall in first quarter GDP growth in the eurozone.
Glow said the outflows were also the result of a wider market shift towards US equities.
Equity global – a mix of equities from global indices such as the MSCI World Index – is among the top of the bestselling sectors YTD, pulling in €20.6bn.
“Back in the 2000s, equity global was a product you could not sell to institutional investors, but this has changed. There is a lot of demand for broadly diversified professionally managed products.”