Yield curves in the eurozone and elsewhere are inverted, leading money market instruments to offer higher yields than medium or long-term bonds, reasons Detlef Glow, head of EMEA Research at Refinitiv Lipper. Photo: Refinitiv Lipper

Yield curves in the eurozone and elsewhere are inverted, leading money market instruments to offer higher yields than medium or long-term bonds, reasons Detlef Glow, head of EMEA Research at Refinitiv Lipper. Photo: Refinitiv Lipper

Amidst July’s market volatility, European funds saw significant net inflows, reflecting investors’ leaning towards money market products and exchange-traded funds. Detlef Glow of Refinitiv Lipper suggests that this movement is indicative of a strategic portfolio realignment, a reaction to the uncertain global economic landscape.

In the prevailing market scenario, the European fund industry reported anticipated net inflows for July 2023. Different asset classes, however, showcased varied performances--some prospered, while others waned.

With the prevailing sentiment that central banks, especially the US Federal Reserve, are , many anticipate a stable or potentially decreasing interest rate trajectory soon.

However, the published this week by Refinitiv Lipper, a data firm, struck a more cautious note.

Concerns remain over geopolitical instability, the regularisation of supply chains and looming recession, particularly with inverted yield curves signaling potential economic downturns, the report noted.

Mutual funds vs ETFs: the July dynamics

Although mutual funds faced modest outflows amounting to -€1.8bn in July, of €15.8bn. The move away from actively managed funds was largely due to the -€11.1bn outflow from mixed-assets products.

Prevailing market conditions, marked by and other regions, render money market products an attractive option, often yielding higher than their medium or long-term bond counterparts. This trend is underscored by outflows from long-term funds (-€1.7bn) and the influx into money market products (+€15.7bn), mirroring European investors’ strategies in these uncertain times.

European fund flows by asset types

For July, money market funds topped the inflow chart with €15.7bn, trailed by bond funds with €15.2bn and equity funds with €0.7bn. In contrast, asset categories like real estate funds (-€0.5bn), commodities funds (-€0.6bn), alternative Ucits funds (-€4.0bn) and mixed-assets funds (-€11.1bn) faced outflows.

Year-to-date cumulative net flows are approximated at €72.9bn.

Intriguingly, while mutual funds observed a net outflow of €13.0bn, ETFs drew an impressive €85.9bn in the first seven months.

Such an affinity for ETFs during volatile periods mirrors past tendencies witnessed during financial or euro crises, as well as during unstable spans like the latter half of 2018.

Euroepan fund flows by promoters

For July 2023, BlackRock, boasting an inflow of €6.9bn, emerged as Europe’s premier fund promoter, edging out notable entities like HSBC (€3.8bn), Amundi (€2.9bn), Vanguard (€2.7bn) and Credit Mutuel (€2.1bn).

In year-to-date terms, BlackRock remains ahead with a net inflow of €50.7bn. They are followed by JPMorgan (€20.3bn), Vanguard (€18.8bn), LGT Group (€18.6bn) and Swisscanto (€14.0bn).

Given the offerings from the top ten promoters and overarching fund flow trends, the significant role of ETFs in shaping the standings of Europe’s leading ETF promoter isn’t surprising.

The European fund landscape of July 2023, as depicted by Refinitiv Lipper, underscores investors’ preferences amidst global economic ambiguity--a tilt towards money market products and ETFs, coupled with a hesitancy towards mixed-asset products. As global eyes remain fixated on the next steps of the US Federal Reserve and other central banks, including that of European Central Bank, Glow forecast more pronounced shifts in European fund dynamics in the forthcoming months.

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