European investors pulled out a net €1.13bn from European equity funds. Small and large cap funds were hit almost equally hard, while income funds continued to receive inflows of €445mln. It remains to be seen whether this negative trend is to last, as the latest ECB stimulus announced by Mario Draghi in the beginning of this month gave fresh momentum to Eurozone equities. Also, EIE’s 12-month forward-looking fund sentiment has indeed deteriorated over the year, but it remains net positive meaning asset allocators are more likely to increase than to decrease allocation. The outflows might therefore well be a reflection of some tactical asset allocation bets.
No trend breach
The negative inflows to European equity funds are not that surprising, taking into account the pattern of this year’s fund flows into the asset class. In January, net inflows amounted to more than €7bn, to then gradually decline over time until turning negative now. Flows into US equity funds have followed a similar, albeit more gradual trajectory of decline, turning negative in June after almost two years of straight inflows.
Emerging market equity fund flows show a reverse trend, with strong net outflows in the first months of the year, and robust inflows since April. In July, flows into the asset class once again broke a record, reaching their highest level since January 2013.
On the bond side, high yield was massively abandoned, while government bonds enjoyed their first net inflows since March (of €1.13bn). Investment grade corporate bond (+€1bn) and emerging market bond inflows (+€2.5bn) also remained steady.