Equity markets become buoyant

2017 has been a bleak year for many in the finance world but asset management has by contrast been in the pink with record breaking demand.

According to Thomson Reuters Lipper’s most recent European Fund Flows Report, assets under management in the European Mutual Funds Industry hit a best ever 10.2 trillion euros at the end of September. That’s up from the 9.4 trillion euros mark at the end of 2016.

The report stated that bond funds have been the best-selling individual asset type for the year to date with an increase of 232.9billion euros, whilst equity global was the best-selling sector, up 51.3billion euros.

The second best performing asset type was mixed-asset funds followed by equity funds, alternative funds, real estate and commodity funds.

These fund flows added up to overall net inflows of 554.4billion euros in long-term investment funds. ETFs contributed 67billion euros to these inflows.

By sectors Equity US suffered the highest net outflows.

BlackRock, with net sales of 84.9billion euros was the top fund promoter for the first nine months. In its most recent results it also flagged up equity, fixed income and multi-assets as the biggest inflow contributors.

Other providers such as GAM Holding recently reported net inflows up 9% to CHF 11.8billion in the three months to September 30 compared with the same period to June 30. It said fixed income strategies was the main driver highlighting its GAM Local Emerging Bond fund, which invests in debt of emerging countries denominated or pegged to the respective local currency.

UK income has suffered alongside the outflows from the Woodford Equity Income Fund

…interest rates will remain “lower for longer” driving equity markets even higher…

Detlef Glow, head of Lipper EMEA Research, says the demand for bonds in Europe has been driven by the scarcity of single bonds as a result of the European Central Bank’s continued bond-buying policy to boost the region’s economy.

“It means that if they want to buy a bond then the easiest way is through an ETF,” he says. “Multi-assets are also doing well because it is one answer to a low interest rates environment. It is both defensive and aggressive. You get in the water without getting wet.”

Glow says the appeal of mixed assets has rebounded since last year when its popularity was soured by getting “3 major calls wrong” namely Chinese growth, Brexit and Donald Trump becoming US president. “People said if you don’t get it right then why should you be in your funds, but they came back because they realised that interest rates will remain low this year and mixed is a risk averse product,” he explains.

Referring once more to Trump, Glow states that his election is a prime reason for the slump in US equity. “It’s been over weighted for a while and when we saw the Trump Jump in share prices after he became President they harvested their returns,” he states. “UK income has suffered alongside the outflows from the Woodford Equity Income Fund. I don’t think Brexit has had an impact. There is also more of a demand for diversification, investors don’t want to be weighted in any one region like Europe or the US.”

What does he expect in the next few months?

Glow believes interest rates will remain “lower for longer” driving equity markets even higher. But he is also cautious.

“There is disruption potential in the market from Brexit negotiations to Trump’s unpredictability, to troubles in North Korea and the Middle East,” he says. “We haven’t seen the market react yet but the potential for disappointment is there.”

This article was published in our Business Reporter Online: Treasury and Asset Management.
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