ECB’s New Measures Lure Investors to Fixed-Income Funds in March

The 10th March announcement from the European Central Bank (ECB) that it is committed to buying non-financial investment grade bonds to stimulate the Eurozone economy led to a new interest in fixed-income funds during the month. The biggest beneficiaries of the ECB’s new policy were funds in the EUR corporate bond Morningstar category, which had March inflows of EUR 3.0 billion, as funds in this category invest the majority of their assets in investment-grade corporate bonds. Schroder ISF Euro Corporate Bond, which has a Morningstar Analyst Rating™ of Bronze and is Europe’s largest corporate bond fund, received the category’s greatest inflows (EUR 517 million). The move into fixed income was broad-based as investors redeemed large amounts from money market funds, which saw outflows of EUR 14.3 billion during the month, and invested EUR 11.6 billion in fixed-income funds across categories. The EUR high yield bond category had its greatest monthly inflows in 12 months. Pioneer Euro High Yield, which has a Neutral Analyst Rating, was the leader in the category with estimated inflows of EUR 346 million.

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

• Investors pulled assets out of equity funds for the third month in a row amid the first quarter’s significant market volatility. Equity funds saw total outflows of EUR 8.0 billion in March.
• The global emerging markets bond—local currency category had March inflows of EUR 1.4 billion, more than in any month since May 2014, as emerging currencies continued strengthening from multiyear lows.
• Nordea continued its strong growth by gathering EUR 2.4 billion, the highest inflows of any fund provider for the second month in a row. The majority of the funds went into its Stable Return allocation fund, which has gathered EUR 2.6 billion of new assets since the start of the year.
• European investors continued to reduce their U.S. dollar-denominated fixed-income allocations. Funds in the USD high yield bond category saw outflows of EUR 4.3 billion in the first quarter.
• BlackRock, the world’s largest asset manager, joined the list of fund providers with the highest outflows for the month after outflows of EUR 476 million from its long-term funds. The firm’s equity funds shed a total of EUR 1.3 billion.

Matias Möttölä, senior manager research analyst for Morningstar, comments: “European investors found their appetite for fixed-income funds in March after nine months of nearly continuous outflows. The sudden change in sentiment followed an ECB commitment to start buying non-financial investment grade bonds, which comes on top of the existing programs to purchase government debt, asset-backed securities, and covered bonds. The announcement drew European investors to funds in the EUR corporate bond and EUR high-yield bond categories. Both received their largest net inflows in any month since March 2015, when the ECB started buying sovereign and quasi-sovereign bonds.”

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