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European investors pile into equity funds

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Equity funds saw a jump in inflows in November 2019 as fixed income investments retreated, a sign that European investors are tapping riskier asset classes.

According to Ali Masarwah, director of Emea editorial research at Morningstar, equity funds reached €30bn in November, “the highest one-month inflows” since January 2018.

This compared to fixed-income funds with inflows of only €16.4bn, falling far below the previous 12-month average.

Masarwah said that European investors followed the motto “better late than never”, as they invested heavily in equity funds, in line with the upward trend of the market in Q4 2019.

But this is a recent phenomenon despite “breathtaking equity gains this year”.

Equity funds domiciled in Europe have shed €20bn, year-to-date.

“In November, global large-cap blend and global emerging-markets equity funds were widely sought, but even previously highly unloved categories such as eurozone large-cap and Europe large-cap equity funds witnessed a comeback,” he explained.

Besides equity funds, both allocation and money market funds also saw inflows, with €7.3bn and €7bn respectively in November; while commodity funds suffered outflows landing them in negative territory.

Appetite for global large-cap blend equity and global EM equity funds 

Overall, actively managed funds saw higher demand last November than index funds, €34.4bn vs €21.7bn.

Subscriptions of actively managed equity funds totalled €15.2bn, marking their first positive month since June and the highest inflows since January 2018.

Equity index funds, including exchange-traded funds, aggregated just slightly less with €14.9bn. The market share of passive funds increased to 16.4% as at 30 November from 14.8% one year ago.

Global large-cap blend equity funds were most popular among investors, with a total of €9.3bn inflows (€6.3bn active and €3bn passive).

Platform FundRock and Mercer Global Investments were among the most successful actively managed fund providers, and iShares and Vanguard among those responsible for passive funds.

Global emerging markets funds followed with €5.3bn of inflows; exceeding other bond fund categories, such as EUR corporate bond funds.

The top funds were UBS ETF MSCI Emerging Markets Ucits ETF, which took in close to €1bn, and iShares Core MSCI EM IMI Ucits ETF, climbing by €430bn of inflows.

Fund inflows into passive global emerging market equity funds surpassed their active counterparts (€3.2bn vs €2.2bn).

Short-term bond funds bleed

Meanwhile, the boost to equity funds was accompanied by a sell-off of short-term bond funds.

DWS, BNP Paribas, and Allianz Global Investors suffered the highest outflows, according to Morningstar.

Altogether, actively managed bond products dropped to €9.5bn of inflows, significantly less than in previous months.

“Inflows shrank across the board as demand for previous best-selling fund categories such as global flexible bond and EUR corporate bond sagged significantly and flows to global emerging-markets bond funds (hard currencies) even swung into negative territory in November,” Masarwah commented.

Yet, conversely, passive bond funds continued to enjoy stellar demand with €7.3bn of inflows.

Among the targeted products were diversified, mainstream index-trackers sitting in categories such as EUR corporate bond, USD government bond and CHF bond.

Masarwah noted that “ETFs that replicate global emerging-markets indexes for local currencies continued to see high demand in November”.

Elena Johansson

Senior Reporter

Part of the Bonhill Group.