european investors turn on backs on equity

According to Morningstar’s latest fund flow research, European investors heavily sold out of equities in favour of fixed income funds during the second quarter of the year.

european investors turn on backs on equity


This change of direction is blamed squarely on instability in Europe and bad news from the US and China.

The negative new impacting on the European markets saw investors withdraw €4.2bn from long-term funds with a further €1.2bn of redemptions in June. Even money market funds, that saw €10bn of inflows in Q1, watched as €19bn was withdrawn in June with funds offered by JP Morgan and BNP Paribas hit particularly hard.

Dan Lefkovitz, director of fund research operations at Morningstar commented: “European asset flows reacted predictably to wobbly markets in the second quarter. Investors fled equities and sent capital to money markets and fixed income, especially corporate and non-euro debt.

“Passive funds were among the winners of the second quarter, showing the importance of low costs in a low-return environment.”

Of the major asset classes, only fixed income saw positive net flows in Q2 (€21.1m) with, at the other end of the scale, equities the hardest hit.

The equity outflows, however, were not as high as those seen in the second half of last year or in the darkness of 2008, with Lefkovitz suggesting investors in European funds are “developing stronger stomachs”.

Passive funds also had a good month, led by Vanguard FTSE UK All Share Index with inflows of €859 million.

Lefkovitz added: “Passive funds are likely benefitting from the move away from adviser rebates in the UK market.  But healthy inflows to passive UBS funds and the strongest month on record for KLP AksjeGlobal Indeks show the trend extends beyond the UK. Investors are increasingly focused on controlling fees in a low-return environment.”