Posted inEquitiesEurope

European equity appeal fades

The asset class is on its longest net outflows streak since 2011/12, according to Morningstar data. It has now been 10 months since European equities last saw net inflows from European investors.

Bearing this bleak picture in mind, forward-looking asset allocation sentiment still appears surprisingly benign. Few fund buyers expect to sell off more European equities, and those intending to increase their allocation still outnumber those planning to cut exposure by a wide, albeit shrinking margin (see European equity chart to the right).

One should also bear in mind that many investors are overweight European equities. A neutral or negative stance towards the asset class therefore doesn’t necessarily translate into an underweight.

Fund managers, for their part, are losing confidence in European equities more quickly. As the chart to the right shows (European equities – fund manager sentiment), return expectations for the asset class have steadily come down since the Brexit vote in June. Twelve-month return expectations are now close to zero, the lowest level in two years.

Part of the Bonhill Group.