European Funds Lose Assets Twice in Three Years

Investors pulled more money than they allocated to Europe-based funds in 2011 for only the second time since the start of the decade.

(February 29, 2012)  —  Flows to European funds were in the red for only the second time in a decade last year, as investors hoarded cash and retreated to the safe haven of fixed-income research this week has shown.

After a bullish start to the year, seeing €96.1 billion in new money, the European funds industry lost a total €59.8 billion, according to Data Monitor Lipper. The only other time funds saw net negative outflows in the past ten years was a €391.4 billion exit in 2008.

Ed Moisson, Head of United Kingdom and Cross-border Research at Lipper, said: “The stock market falls that began in July not only ended the healthy sales activity that had started the year, but triggered a tidal wave of redemptions that rolled through the industry. While these outflows ebbed slightly in the final quarter of the year, there were few who did not feel the cold chill of investors withdrawing from mutual funds by the year-end.”

Despite a thirst for fixed income, Lipper found that the top selling fund across Europe in 2010 – emerging market bonds – fell to ninth place in terms of total net sales last year. Replacing the asset class at the top of the table were sterling-denominated money market funds, with estimated net sales of €23.8 billion. Notably investors steered clear of Euro-denominated money-market funds and tellingly, money market funds denominated in United States dollars saw huge inflows over the year. They took in estimated net sales of over €7 billion and climbed in the rankings from 197th position to fifth.

Holding second place in sales were local-currency denominated bonds, which brought in €16.4 billion.

Showing the fear-factor in European equities, the third most popular funds were invested in German equities. These funds took in over €12.4 billion last year and rose from being ranked in position 28 in 2010. Emerging market equities, which had been in third position in terms on net sales in 2010, fell to 25th place.

Moisson also said that a number of managers had postponed plans to launch new funds amid the turmoil in the last half of the year, which had meant that the number of funds available contracted for only the second time in the past decade.

He said: “The last time this happened (in 2009) the net reduction was 801, while this year’s figure was a mere 43. In recent years there have been about the same number of fund launches in both halves of the year, but in the latest year there was an unsurprising tail-off partly the result of some planned launches being shelved.

“Just as 2009 did not herald a new dawn of product rationalisation across the industry (there was a net increase of 871 funds in 2010), so it seems very unlikely that 2011 will either. Instead market conditions will largely dictate where product development priorities lie,” Moisson said.