Investment funds

Luxembourg assets under management resist omicron

The market for undertakings for collective investment (UCIs) rose again in Luxembourg in November last year. With the exception of the United States, however, the emergence of the omicron variant and the upturn in inflation had an impact on foreign markets.

After a slight decline, the total amount of assets under management in investment funds in Luxembourg-- which includes UCIs subject to the 2010 law, specialised investment funds and Sicars--reached a relative record in November. According to the latest figures published by Luxembourg’s financial centre watchdog, the Commission de Surveillance du Secteur Financier (CSSF), net assets in the sector reached €5.749bn on 30 November 2021. This represents an increase of 0.55% compared to the previous month.

While the total assets of the sector decreased by 0.81% at the end of the second quarter of 2021, the CSSF notes that the Luxembourg UCI industry has grown by 17.77% over the previous twelve months. The year 2020 ended with annual growth of 5.40%.

Impacted by the various developments of the pandemic, the UCI industry is experiencing the effects of global health developments and higher than expected inflation in Europe and the US. Both have weighed on investor sentiment, leading to a fall in the equity market during November 2021 in favour of the bond market.

The shadow of the omicron variant and inflation

In contrast to Luxembourg, the European mutual fund market recorded a negative performance of 1.35%, again against the backdrop of the pandemic. The increase in hospitalisations and the appearance of new restrictions caused by the emergence of the fourth wave of covid-19 in several countries have influenced a negative trend of the European UCI market. The CSSF specifies that this situation is also due to higher inflation in the euro zone and persistent supply chains shortages.

Emerging countries also recorded a negative trend in November. Eastern Europe was most affected, with a negative 7.90% change in the equity market. The region was strongly influenced by the fall in oil prices and the resurgence of covid-19 cases in the Czech Republic, Poland and Hungary.

Against the backdrop of doubts about the omicron variant, the Asian equity market fell by 0.96% between October and November. The CSSF says that this trend is also taking place against the background of a fall in the Chinese equity market due to fears of new pandemic restrictions, a slowdown in the real estate market and a regulatory tightening of internet surveillance.

A positive US market

The US mutual fund market fared relatively better than the overall average, ending November with a positive 1.30% change. Despite a decline in US equities due to concerns about the omicron variant and the Federal Reserve's (Fed) faster reduction in asset purchases due to inflation, US mutual funds still managed to do well. “The strong rise of the US dollar against the euro has pushed the US mutual fund category into positive territory,” says the CSSF.

The surprise is real on the American side in a context where Fed Chairman Jerome Powell had himself indicated, in the summer of 2021, that the policy of massive support for the economy was coming to an end. He estimated that the decline in unemployment and the evolution of the pandemic would allow the Fed to reduce its asset purchases “before the end of the year.”

This story was first published in French on Paperjam. It has been translated and edited for Delano.