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european equity funds top q3 sales chart

In its latest monthly report on European fund flows, Morningstar reveals that Europe Large-Cap Blend Equity was not only its top-selling open-ended fund category in September, but also for the whole of the third quarter, after the sector achieved inflows of more than €2bn and €5bn respectively.

Even the firm’s long-unloved Eurozone Large-Cap Equity category saw net sales of more than €1bn in September, the highest such monthly inflow since July 2009. Overall, four of the five most popular fund sectors last month were European equity-focused (see table).

The upturn in appetite for European stocks tallies with improving fund manager sentiment on the asset class.

Popular Morningstar sectors (€m)
Sector Sep ’13 Q3
Europe Large-Cap Blend Equity 2,112 5,087
Europe Flex-Cap Equity 1,236 2,462
USD High Yield Bond 1,220 4,681
Europe Large-Cap Value Equity 1,215 2,161
Eurozone Large-Cap Equity 1,041 1,078

Expert Investor Europe’s Manager Sentiment Survey shows expectations for European equities have risen strongly in 2013, while Bank of America Merrill Lynch’s latest survey found the proportion of fund managers overweight the asset class at its highest since June 2007.

Bond funds lose out

In contrast, fixed income funds suffered outflows of €8.7bn last month, taking net redemptions to €8.5bn for Q3. Pimco’s GIS Total Return Bond and GIS Global Investment Grade Credit strategies were among the hardest hit, shedding €3.8bn and €1.1bn respectively during the quarter.

Only the Morningstar USD High Yield Bond and Global High Yield Bond sectors achieved significant inflows between July and September, with net sales of €4.7bn and €2.3bn respectively.

‘Pragmatic’ approach

“With the Federal Reserve’s surprise decision not to reduce its asset purchase [programme], and the ECB’s guidance on low rates amid mildly brightening economic prospects in Europe, European investors find themselves in a confusing situation,” wrote Ali Masarwah, a member of Morningstar’s European asset flow team.

“As Morningstar asset flow data for September indicates, European open-end fund investors have responded to these mixed signals in a pragmatic way, shunning emerging market bonds and equities as well as interest-rate-sensitive [dollar] bond funds while sizably increasing their exposure to European equity funds.”

Other findings of the report:

  • Investors pulled almost €25bn out of money market funds in September, the biggest monthly outflow since June 2009;
  • BlackRock enjoyed the highest net inflows of any group during the third quarter, owing mostly to growing demand for its index funds; and
  • Pimco suffered the biggest outflows in Q3, but remains in positive territory for 2013, with net inflows of €4.2bn for the first three quarters combined.

A PDF of the report can be downloaded from Morningstar’s website, here.

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