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Investors Stay Risk-Averse in May, but No Panic Evident Before the Brexit Vote

Although stock markets ticked nervously upward in May for the fifth month in a row, investors pulled their money out of open-end equity funds domiciled in Europe. While this does reflect unease, it was by no means a stampede, considering the uncertainty surrounding the UK’s referendum on EU membership on June 23.

In fact, investor behaviour can be interpreted as indecision regarding the dangers of a possible vote for Brexit. This is also reflected in the stance investors took regarding categories focused on UK equities and sterling-denominated bonds. While all six sterling-denominated equity categories saw outflows in May, the combined outflows of EUR 1.2 billion were below April levels, and much less significant than the outflows from the UK equity categories in the first half of 2015.

At the same time, sterling-denominated bond categories witnessed increasing outflows indicating that European investors may have had UK-specific concerns. However, the redemptions of EUR 457 million in May were nowhere near levels seen ahead of the Scottish independence referendum in September 2014.

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

  • The Nordea-1 Stable Return fund has succeeded in weathering the volatility in equity markets since August 2015; in the trailing 12-month period, the fund took in net new assets of EUR 5.2 billion, amounting to an organic growth rate of 84 per cent.
  • US-dollar short-term diversified bond funds witnessed their highest one-month inflows on record, primarily through inflows into the JPMorgan Managed Reserves fund, which took in a net EUR 1.2 billion.
  • Outflows from Europe large-cap blend equity funds accelerated in May, with BGF European, rated Silver by Morningstar analysts, and Invesco Pan European Equity suffering the most.
  • Franklin Templeton saw outflows of EUR 3.0 billion in May from a myriad of funds and categories at the firm; Templeton Global Total Return and Templeton Global Bond accounted for EUR 930 million of the month’s total outflows.
  • Turning to the few winners among Europe’s largest open-end funds, inflows into the DWS Top Dividende, a global equity income fund carrying a Morningstar Analyst Rating of Silver, thrived on the fund’s substantial outperformance.

Ali Masarwah, EMEA editorial director for Morningstar, comments: “In all, our asset flow data for the UK equity and fixed-income categories does not support the idea of a stampede out of UK equities and sterling-denominated bonds ahead of the UK’s referendum on EU membership. Rather, our data suggests that while investors may have had concerns given the general uncertainty around the referendum, they apparently did not expect Brexit to actually happen.”