Save Equity Funds, Long-Term Funds Stage Comeback in July: Morningstar Fund Flows Analysis

23 August 2016

The fallout of the Brexit referendum continued to be felt in July, but it was limited to high redemptions out of specific equity and property fund categories. Overall, European investors returned to the fund market with vigour. Redemptions of equity funds continued at a substantial rate, but inflows into allocation, alternative, and fixed-income funds rebounded strongly, easily compensating the substantial losses suffered at equity funds. As a result, total inflows into long-term funds stood at a solid EUR 15.8 billion, the second-highest level of inflows seen in a one-month period this year.

Fixed-income funds carried the day, posting net inflows of EUR 22.0 billion, only slightly less than this year’s highest levels in April. On the other hand, investors continued to redeem myriad large-cap equity categories that invest in developed countries. Europe large-cap-blend funds shed EUR 3.4 billion in July, and EUR 11.5 billion year to date, making it the most unloved category in Europe.

Funds investing in emerging-markets equities and debt instruments received handsome inflows in July, with three emerging-markets bond and one emerging-markets equity category among the 10 top-selling categories for the month.

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

  • In the past 12 months, alternative funds have enjoyed an organic growth rate of 15.1%, a growth rate second to none among all long-term broad categories.
  • Nordea Stable Return Fund, which was recently awarded a Morningstar Analyst Rating of Bronze, joined the list of Europe’s 10 largest long-term open-end funds for the first time with net assets of EUR 17.0 billion. The fund took in EUR 2.2 billion in July.
  • Franklin Templeton, the US asset manager, lost EUR 1.8 billion in assets in July, bringing this year’s total outflows to EUR 15.4 billion. In the past 12 months, outflows out of Franklin Templeton´s long-term funds have totalled EUR 27.1 billion, which amounts to one fifth of beginning assets.
  • Many investors preferred to play it safe in July amidst continued uncertainty in the macroeconomic and geopolitical picture by investing EUR 33 billion in short-term money market funds, of which EUR 21.3 billion went to GBP money market funds.

Ali Masarwah, EMEA editorial director for Morningstar, comments:

“While the decision by voters in the UK to exit the European Union caused substantial short-term market volatility and has likely been a major factor behind European investors´ lack of appetite for equity funds, outflows from funds investing in UK equities and bonds have remained unspectacular considering the issue at stake. Combined outflows from 25 categories representing UK assets amounted to EUR 2.7 billion in July, slightly higher than previous months’ levels. In absolute terms, UK large-cap equity funds suffered the highest July outflows, shedding EUR 1.6 billion. UK flex-cap equity funds posted net outflows of EUR 500 million. Both categories had seen inflows in the previous month.”

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