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Fund buyers regain appetite for European equities

Expert Investor’s latest Pan-European sentiment data show the majority of Europe’s fund buyers plan to increase their allocation to European equities over the next 12 months. They haven’t been as bullish about the asset class for two years. The improvement in sentiment conveys a similar picture our researchers got when they visited Spanish investors a few weeks ago.

The bullishness on European equities coincides with a similar uptick in sentiment among asset managers, and seems to have something to do with the improving prospects of the European economy. Inflation is finally edging up towards the ECB’s target, and economic activity in the eurozone is at a multi-year high according to several leading indicators.

 

 

 

  

This is reflected in the macroeconomic outlook of Europe’s fund selectors, which is brighter than it has been for a long time: since spring 2015, to be precise. Some 55% of those polled now have a positive macroeconomic outlook, up from about one third in December.

The asset class that has seen the most inflows over the past few months, US equities, is the only one to have suffered a major setback in appetite: bulls and bears now even each other out. While sentiment is still more positive than before Donald Trump’s election, there is a growing consensus the US equity bull market is running on its last legs. 

Bond flexibility

Unconstrained bond funds are the only sub-category with a large faction of buyers: four in 10 fund buyers plan to increase their exposure in the next 12 months, almost double the number registered in December. This trend is reflected in recent fund flows data from Morningstar: unconstrained bond funds recorded net inflows of €4.2bn in January, the highest amount in seven months.

Against a benign macroeconomic backdrop, equities are clearly more popular than fixed income: investors remain hesitant to buy into emerging market debt and high-yield bonds, as the latter tends to correlate strongly with European equities.

Part of the Bonhill Group.