Craving for ETFs boosts European appetite for equity funds

European investors increased their risk appetite in 2017, recording high inflows into pure equity funds compared with outflows in the previous year, helped by a big rush into passive equity funds, according to a Thompson Reuters Lipper report.

Craving for ETFs boosts European appetite for equity funds

Its report on the European fund industry found that equity funds were the third bestselling asset with inflows of €172.1bn during 2017, compared with 2016 where it had the highest net outflows. Equity ETFs comprised €63.3 bn of the total or nearly 30%.

“These flows (into ETFs) indicated that European investors seem to have had a preference for equity funds when it came to passive products,” Lipper said.

However, despite the low-interest rate environment, bond funds remained the bestselling asset class of 2017 with net inflows of  €289.4bn. These were followed by mixed-asset funds (€172.8bn), equity funds, alternative Ucits products (€53.7bn), real estate funds (€7bn), and commodity funds (€4.3bn).

“These flows may indicate that the risk appetite of European investors increased, since equity funds—the asset type with the highest net outflows for 2016—were back on the menu,” the report said.

“These flows may also indicate that European investors gained a deeper understanding of the performance drivers of mixed-asset funds and alternative Ucits funds, since they were rather shy of investing in these asset types in 2016.”

Overall, 2017 set a new record of net inflows at €756.9bn into mutual funds, far above the record inflows of 2014 at €351bn, and 2016 at €312bn.

For long-term mutual funds, the best selling sector was global equities at €62.4bn, followed by global bonds (€50.9bn), global USD hedged bonds (€45.6bn), and short term EUR bonds (€40.3bn), and emerging markets global in hard currencies bonds (€35.3bn).

Fund selector intentions

However, 2018 looks set to paint a different story for these sectors according to Expert Investor research.

Latest data from Expert Investor’s research team found that European fund selectors do not intend to increase their global equity fund holdings over the next 12 months.

The data found that global equities maintained a consistent low level popularity with 20% looking to buy more and 10% hoping to sell in 2018.

The equity funds selectors are intending on increasing in 2018 are global emerging market, Asia ex Japan, European, hedge long/short, and Japanese equities. Bonds where fund selectors intend to increase their holdings are unconstrained, emerging market corporate, and emerging market government.

AUM

The Lipper report found in terms of overall numbers of funds, equity funds had the highest assets under management (AUM) at €3.9trn, followed by bond funds at €2.6trn, mixed-asset products at €1.7trn, money market funds €1.2trn, alternative Ucits funds at €0.6trn, real estate funds at €0.2trn, other products at €0.2trn, and commodity funds at €0.04trn.

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