Investors pulled out of European-domiciled long-term funds in droves in October as net outflows hit €35.3bn, according to Morningstar Direct.
The scale of the rout had not been seen since the height of the eurozone crisis in August 2011 as investors shunned risk in favour of safer assets.
“What started as a trickle in September evolved into a stampede in October,” said Ali Masarwah, director, EMEA editorial research at Morningstar.
The clearest indication that investors switched to the risk-off mode in October were the record inflows taken in by money market funds, which stood at a whopping €52.8bn.
The combination of outflows and pummelled asset prices saw assets invested in long-term Europe-domiciled funds take a dip, falling from €8.63trn in September to €8.35trn in October.
The main detractor for the fund industry was the negative equity market effect, which chipped away more than €223bn from the value of equity funds.
Equity funds haemorrhaged €11.7 billion and significant outflows hit growth funds, including sector technology funds illustrating a marked change in investors’ sentiment
Bond funds, meanwhile, shed €11.5bn as investors in corporate bonds were confronted by widening spreads.
Mixed-assets funds saw outflows of €6.2bn, thus making October 2018 the second-worst month on record for this broad fund category after October 2008 and alternative funds bled €6.19bn.
Active passive divergence
The biggest divergence of the European fund market between active and passive was seen in the bond space. While actively managed funds suffered outflows of €13.2bn, passively managed funds took in net €1.7bn, which mostly targeted open-end index funds.
These divergent trends played out in several categories, indicating a secular shift away from actively managed to passive bond funds – even in less-liquid market segments which have, until now, generally been considered as the domain of active managers.
Valerio Baselli, Senior Editor, EMEA Editorial Research at Morningstar, said: “The European fund market was yet again the scene of a sharp divide: While actively managed long-term funds bled heavily, shedding €36.4 billion, index funds continued to garner net inflows, which stood at €1 billion; well below previous months’ levels, but comfortably in positive terrain.
“Most notably, investors’ sentiment for technology and US growth funds soured markedly. Here, active and passive funds were both beset by outflows. The same holds true for European and US small-cap funds, which were also redeemed irrespective of the active-passive divide. It was a different story for the largest equity fund category, global large-cap blend funds. Actively managed global large-cap funds took in net €1.3bn, thus bucking the negative trend.”