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European fund selectors view 2021 with optimistic eyes

Cash allocations expected to drop as investors look to deploy capital


Lottie McGurk

This year did not exactly get off to the best start, with many of us across the globe in some form of a lockdown.

While Brexit finally came into effect on 1 January 2021, it was quickly followed by the storming of the US Capitol by a mob of Trump supporters, a successful impeachment in Congress and a failed impeachment in the Senate.

Yet despite this, investors still seem to have an optimistic outlook that perhaps 2021 will not be as bad as 2020.

Tracking sentiment

Every three months, Last Word Research produces our Quarterly Asset Class Report, which tracks the forward-looking investment sentiments of the top fund selectors across Europe.

We ask them the simple question: “In the next 12 months how will your allocation to [insert asset class] change”.

The can give four possible answers: increase, hold, decrease, or I do not use this asset class.

This report tracks all the major asset classes and tracks how European investor sentiment will change over the next 12 months.

This research also asks our respondents about their macroeconomic outlook.

As can be seen in the chart below, heading into the new year European investors are feeling more optimistic about 2021, with nearly half of our respondents reporting a positive macroeconomic outlook.

Stop stashing cash

In line with this increase in optimism, in the next 12 months European fund selectors are expecting to decrease their allocation to cash and money market funds.

In Q4 ’20 we saw a sharp downward trend in allocation to cash, suggesting that perhaps investors are getting ready to take more risk and move back into the market.

While our forward-looking data points to a more optimistic 2021, the historic data provided by Morningstar also supports this.

Looking at the above chart we can see significant net inflows into money market funds in Q2 ’20, when covid-19 hit Europe the hardest and the first lockdowns were announced.

However, since then we can see a steady slowing of inflows throughout 2020. As our forward-looking data suggests, in the next 12 months we could witness significant net outflows from money market funds.

This year may have gotten off to a bumpy start, but it is clear this has not deterred our audience.

It is clear that investors are once again feeling optimistic about the future and are ready to start taking more risk once again.

All the above data is available, and if you would like to get involved in our quarterly research, please do not hesitate to get in touch with