Following two consecutive months of outflows, long-term mutual funds – including both open-end funds and ETFs – staged a comeback to positive terrain after June’s sell off.
Despite falling well short of January’s record-breaking highs, rising equity markets drove assets under management in open-end funds and ETFs to unprecedented levels in July, marking a new record for Europe’s fund industry, the data provider said.
Total assets invested in Europe-domiciled funds, including money market funds, amounted to €9.83trn as of month end July.
Equity funds saw healthy inflows of around €2.9bn in July, although this was far short of the €14bn average monthly inflows to equity funds in 2017.
“July marked a new record for Europe’s fund industry as rising equity markets drove assets under management in open-end funds and ETFs to an unprecedented €8.66trn."
US tech fund demand
Investors continued the trend from June, expressing confidence in US growth by targeting US equity funds, with especially high demand for technology and growth funds. On the other hand, emerging market funds saw a third month in the red while UK equity funds likewise did not fare as well, seeing significant outflows.
Bond funds, meanwhile, returned to investors’ good graces in July with inflows of more than €6.2bn, having recovered from the rout in May and June. Despite lacklustre inflows to the high yield category investors have not entirely switched to risk-off mode and global emerging market bond funds (hard currency issuances) saw their best month since February.
Rebounding from last month, passive equity and bond funds both saw far greater inflows than their actively-managed counterparts. Most notably, passive bond funds outpaced actively-managed bond funds for the sixth month in a row, in absolute terms, while passive equity funds saw their best month since February.
Passive equity funds saw inflows of over €3.71bn, recovering from last month’s negative flows. However, flows to allocation funds – investing in a diversified portfolio across various asset classes – stagnated in July, reversing the trend with inflows of only around €5.2bn. Commodity funds, meanwhile, suffered their first negative month this year due to the wide-spread retreat of commodity prices across the board with over €615m in outflows.
Ali Masarwah, director, EMEA editorial research at Morningstar, said: “July marked a new record for Europe’s fund industry as rising equity markets drove assets under management in open-end funds and ETFs to an unprecedented €8.66trn (€9.83trn including money market funds).
“Heartened by rebounding equities and stable bond markets, investors returned to Europe’s fund market in July. While this put asset flows solidly in positive terrain, last month’s fund distribution results fell more in line with the relatively modest inflows seen in May and April, also coming in well below levels seen in January when animal spirits drove equity markets to unprecedented highs and fund flows to record levels.”
Fund flows show investors’ continued confidence in American economic growth, according to Morningstar.
The category level flows illustrate the continued investor optimism carried over from June as US large-cap blend stock funds enjoyed the highest inflows. Passive funds targeting US large caps were the most favoured by European investors with the iShares Core S&P 500 ETF seeing €789m of new subscriptions in July.
However, European investors targeted US large-cap growth stocks in both active and passive funds, illustrating their confidence in continued economic growth for US equities. Surprisingly, emerging market bond funds fared well too, despite the deepening currency and debt crises seen in several countries such as Turkey and Argentina.
UK large-cap laggards
Among the most notable laggards at a category level in July were UK large-cap blend funds with over €1bn in outflows in July amid Brexit fears. Ultra short-term bond funds and alternative multi-strategy products saw large outflows, as did the US dollar high yield bond category, seeing the fourteenth consecutive month of outflows for this category. Fund-specific stories had their impact, within the multi-strategy fund category over €1bn of net redemptions were suffered by SLI Global Absolute Return Strategies Fund while the Newton Real Return Fund shed €500m.
iShares and NN Investment Partners dominate inflows; M&G sees red due to equity fund redemptions
At a provider level, Dutch asset manager NN Investment Partners topped the list in terms of inflows within the active spectrum, thanks mainly to strong sales of its short-term euro government bond funds gathering more than €1.5bn. Allianz Global Investors saw the second largest inflows mostly attributable to its blockbuster allocation fund.
On the passive side, iShares again dominated asset gathering with inflows of over €2.5bn billion enjoying hefty inflows to its fixed-income, equity, and commodities products. Most notably, the iShares Physical Gold ETC accounted for more than €600m in new net subscriptions contrasting outflows from other precious metal funds which shed €63m through July.
The largest outflows on the active side were due largely to equity fund redemptions as M&G saw over €1.2bn leave in July. Shunning risky assets, investors shed Aviva’s emerging markets fixed income funds contributing to large outflows of over €975m. On the passive side, Blackrock easily led redemptions in July with over €881m in outflows, with investors’ aversion to UK equity large-cap funds of particular significance to that number.