A month ago we asked the question whether the heydays of multi-asset funds were over. When looking at January’s fund flows, it looks like they indeed are. While net flows into the category reached a four-year low in December, January saw the first outflows from multi-asset funds since 2011 as investors took out a net €4.5bn.
The outflows are particularly painful for the strategy considering they were even bigger than those from Emerging Market and Asian equity funds, even though those asset classes lost between 6 and 7% in January.
Moreover, an important selling point of multi-asset funds has always been that they offer investors some downside protection when equity markets turn wild, while at the same time enabling investors to profit from their exposure to stocks in good times. In 2014 and 2015, European investors therefore invested an astronomic €278bn in multi-asset funds (see chart below),
far more than in any other strategy. But apparently investors don’t buy this argument anymore, and sell out. According to Financial Express, a financial data provider, balanced multi-asset funds lost 4.6% on average in January, while government bond funds stayed flat and European equity funds lost slightly over 7%.
Turning to cash in desperation
So what are investors buying to look for protection now? The short answer is: nothing. They seem to be hoarding cash, as no asset class tracked by Morningstar has registered a significant uptick in interest in the past couple of months. Moreover, inflows into all major asset classes decreased in January compared to the previous month.
The only categories that registered meaningful inflows were European equities and absolute return funds. Though inflows into the latter were the lowest in three months, and most absolute return funds lost quite some money in January, investors are still chipping in more money, for as long as it lasts.