January 2018 was the strongest month on record flow-wise for Europe’s fund industry, with inflows surpassing €120 billion with the help of open-ended equity funds and exchange traded funds (ETFs).
Since equity markets continued their winning streak until the close of January, it does not come as a surprise that assets managed by Europe’s fund industry also marked an all-time high with assets in long-term funds reaching €8.57 trillion. It remains to be seen, however, how market participants will react to the sudden market correction in February, which left many equity markets 10% lower than the levels seen at the end of January.
January again witnessed a huge demand for emerging-markets equity and bond funds. This is illustrated by the fact that they make up three of the five top-selling fund categories. This positive sentiment towards emerging markets very much reflects the prevailing risk-on mode in January. The emerging markets equity funds offered by JP Morgan and Schroder witnessed the strongest demand, enjoying net inflows of €829 million and €584 million, respectively. It is worthwhile noting that emerging-markets index funds also enjoyed considerable inflows.
However, driven by good prospects for economic growth, investors also focused on global equity funds. Passively managed funds, open-end index funds and ETFs, have attracted 57% of the inflows sent to global large-cap blend equity funds.
Euro Government Bonds Out of Favour
Turning to the January laggards, the lack of attractiveness of euro government bonds is clearly highlighted by outflows from euro government bond funds and euro diversified bond funds, which bled for yet another month.
Fund-specific stories also had their impact. The outflows from UK equity income funds were arguably motivated to a large degree by the continuing underperformance of several large funds. LF Woodford Equity Income shed €230 million in January. This fund, which is run by manager Neil Woodford, holds a Silver Rating despite its recent underperformance.
Looking at the fund provider level, Baillie Gifford, a Scottish independent investment company, topped the list in terms of inflows within the active spectrum. While 40% of BlackRock’s assets sit in index funds, the actively managed fund range was the bedrock of the success of the world’s largest asset manager. Conversely, BlackRock’s passive fund range suffered net outflows of €140 million in January.
Fidelity flows rebounded strongly in January after suffering a weak year sales-wise in 2017 when the active fund house suffered net outflows of €567 million. The respite went back to inflows to GBP corporate bond funds with Gold-rated Fidelity MoneyBuilder Income Fund collecting almost €2 billion out of total inflows of €3 billion sent to Fidelity’s fixed-income products.
The high demand for M&G’s Silver-rated Optimal Income Fund amidst volatile bond markets does not come as a surprise, as this cautious allocation fund has displayed a defensive posture in the past years. This has served investors well since bond markets started to suffer under sharp bouts of volatility in the fourth quarter of 2016.
Among the largest five actively managed funds, the UK version of SLI’s Global Absolute Return Strategies continued to haemorrhage amidst investors’ concerns about the flagging performance in the past years. However, outflows came at a much-reduced level when compared with 2017.
