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Equity Funds Suffer Outflows, European Investors Favour Fixed-Income, Reveals Latest Morningstar European Fund Flows Data

Still apparently shaken by the spike in volatility earlier this year, European investors continued to shun equity markets in April. Comforted by the European Central Bank’s March announcement that it would start buying non-financial investment-grade bonds on top of government debt, asset-backed securities, and covered bonds, investors continued to favour fixed-income open-end funds, which saw net inflows of EUR 20.2 billion during the month, according to Morningstar’s estimates.

For equity funds, April was the fourth consecutive month of outflows despite generally positive returns – investors pulled EUR 6.4 billion from equity funds during the month. Global emerging-markets equities was the most notable category to buck this trend, with inflows of EUR 1.6 billion. Altogether equity funds have seen outflows of EUR 28.7 billion year to date. In contrast, allocation and alternative funds continued to see moderate inflows, which helped lift the total tally for European long-term open-end inflows to EUR 21.2 billion in April.

Further findings from Morningstar’s fund flows report for April include:

  • Among Europe’s 10 largest providers, BlackRock, Deutsche Asset Management, JPMorgan, Fidelity, Schroders and Invesco have seen year-to-date outflows after a generally positive 2015 in terms of fund sales.
  • A strong launch for UBS Third Party Management Company’s MM Access II High Yield, which had inflows of EUR 5.0 billion, fuelled inflows for the USD high-yield category, making it April’s most-popular open-end fund category.
  • Relative to the size of the category, Japanese large-cap equity funds have seen notable year-to-date outflows of EUR 3.6 billion.
  • The asset manager with the highest outflows for the month was Standard Life, driven by outflows of EUR 1.8 billion from its European Equity Income fund, which has a Morningstar Analyst Rating™ of Bronze. The outflows, which resulted from an internal shift of assets to a segregated account following the same strategy, shrunk the fund to EUR 1.3 billion.
  • The April figures for M&G Optimal Income, which has a Silver Morningstar Analyst Rating, were another signal that outflows from the fund are beginning to slow. Outflows of EUR 419 million in April and EUR 451 million in March are much lower than redemptions between April 2015 and February 2016.

Matias Möttölä, senior manager research analyst for Morningstar, comments: “April inflows into fixed-income funds followed net inflows of EUR 11.6 billion in March, which broke a year-long trend of outflows from the asset class. But whereas in March investors focused on funds that would benefit directly from the ECB’s new buying program, in April they showed broader trust in the asset class, favouring funds with higher risk such as those investing primarily in high-yield and emerging-markets bonds.”