The time when markets were preoccupied with Greece defaulting, the breakup of the euro, and the global impact of a potential Chinese hard landing all seems a distant memory. So far, 2014 has been dominated by the repercussions from the May 2013 “taper tantrum”, the preoccupation with inflationary expectations and the responsibilities of the world’s central bankers. Despite discussions of credible withdrawal of the U.S. Federal Reserve’s “quantitative easing” plan, the falling yields in government bonds in January 2014 surprised many investors with the “pain trade.” Equities, meanwhile, have been reasonably buoyant as the U.S. quietly goes about rejuvenating, and the current moderate-growth, low-inflation, and low-volatility environment coincides with the torpor of the Northern Hemisphere summer.
In this environment European fund flows year to date have been remarkable. Total European net sales of €252bn into mutual funds are up 34% from the entire sales figure for 2013 (€188bn) and currently represent the highest sales figure since 2006 (€372bn). Cross-border funds are proving their dominance, taking the lion’s share of sales (€171bn) YTD, but domestically, Italy and Spain have led the pack with a combined €40bn and the United Kingdom has collected the bronze medal at €13bn.
Table 1. European Net Sales YTD 2014 (€m).
Source: Lipper FundFile
Despite an improving environment for equity funds, bond fund flows have dominated, dispelling last year’s fears of a bond bubble. Flows of €114bn have flowed into bond funds, outstripping equity fund flows of €61bn, and bond fund flows appear to be on track to surpass 2012’s bumper year. The other notable development is the rise of flows into mixed-asset funds, with €62bn of sales, beating equities into second place. This represents increasing interest in the asset class, with the combined sum of European sales in 2013 and YTD 2014 looking to break previous records. Interest in commodities funds, which lack support from a rising U.S. dollar, has been paltry at €53m YTD, continuing on from a poor 2013 (-€7bn).
Sector analysis within bond funds reveals that yield-thirsty investors are showing an increased appetite for go-anywhere flexible bond funds (€16bn), with emerging market bond funds, European high-yield bond funds, and European investment-grade bond funds also proving popular (€40bn combined) at the expense of U.S. and U.K. bond funds. The rising equities tide has floated most regions, with European and U.S. equity funds proving very popular (€32bn combined). An appetite for developed markets, though, has rendered a poor showing in riskier regions, and they have no representation in the 25 top sectors. Asia ex-Japan, with €3bn of net outflows, has suffered the worst.
Table 2. Top and Bottom Five Sectors by YTD 2014 (€m)
Source: Lipper FundFile
The composition of the top fund groups remains little changed from 2013. BlackRock, with €19bn across its active and passive business, tops the charts and is on par to match last year’s flows. In terms of individual funds, the recently launched CF Woodford Equity Income fund jumps straight into the 25 top sellers with over €2bn of net sales. M&G Optimal Income is proving popular with the current levels of investor appetite for yield (€4.5bn YTD) and Allianz Income & Growth (€3.5bn) and Morgan Stanley Diversified Alpha Plus (€3bn) have benefitted from the increasing general trend into mixed asset funds. PIMCO GIS Income Fund (€2bn) makes a notable appearance in 13th place.
Jake Moeller's analysis of fund flows for the first half of 2014 is based on data from Lipper’s FundFile and SalesWatch. The entire European Mid-Year Review is available on-line here and includes a special supplement on U.S. sales activity.