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European fund flows plunge in June as investors shun risk

Japanese and European equity funds lead sell-off as investors avoid riskier assets, although US equity funds buck the trend

European fund flows took a hit in June as long-term funds suffered outflows of €10.5bn, according to Morningstar.

It was the worst monthly flow performance since June 2013.

Among asset classes, Japanese equity funds suffered the largest outflows of €1.6bn in June, followed by European equity funds (€1.5bn) and emerging market debt and equity as investors continue to turn their backs on riskier assets.

Equity trackers also suffered their first negative flow month since May 2016 with outflows of €3.6bn.

While allocation funds had the largest inflows in June, at €5.2bn, it was the lowest level in a one-month period since December 2016.

Morningstar Emea editorial research director, Ali Masarwah, said: “Widespread selling of riskier assets was a dominant feature across the European fund market in June, contributing to a reversal of fortunes for the asset management industry”.

Masarwah noted that this marked a sharp reversal following 2017 that experience record inflows.

Morningstar European June fund flows
Morningstar European June fund flows

US equities optimism

Despite negative sentiment surrounding US equities since Donald Trump won the presidential election, investors are increasingly putting money in large-cap US equity funds.

“Despite widespread caution, there were some bright spots with investors seeing potential across US equities and the technology sector,” Masarwah said.

“This suggests that investors remain confident that healthy earnings growth is likely to continue in the US, while taking a decidedly more cautious stand on the rest of the world,” he said.

This is in line with Last Word Research that found that in Q2 2018, European fund selectors had bumped up US equities into a low neutral sentiment territory.

Winners and losers

Morningstar found that Dutch asset manager ASR topped inflows during the month at €2bn due to its offering of US large-cap blend funds and euro fixed income products. Natixis followed at €1.8bn.

iShares dominated passive inflows at €1.3bn also thanks to its US large-cap equity blends which accounted for €1bn of new net subscriptions.

On outflows, Pimco was the biggest active fund laggard at €3.4bn, with its flagship GIS Income fund contributing €2.6bn of the outflows. Morningstar said this was the fifth consecutive month of outflows.

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