ANNOUNCEMENT: Expert Investor is now PA Europe. Read more.

Fund selectors look at absolute return

European fund buyers are increasingly looking for refuge as both bond and equity prices have started to look suspiciously high.

Not only are net fund flows to the asset class at all-time highs, absolute return is one of the favourites of European fund selectors, with 43% of them planning to increase exposure and just 9% decreasing allocation. Alternative UCITS equity funds are more popular than their bond equivalents, but both are widely in use.

alt=''

Readying for market events

Data from the EIE Historic Fund Flows Database suggest that especially long-short debt funds, European equity long/short funds and event-driven absolute return strategies are wanted at the moment. Especially the latter category is a new kid on the block. In the first five months of 2014 inflows into absolute return funds performing event-driven strategies amounted to almost €1bn combined, whereas this particular product was virtually non-existent in terms of net inflows before.  

“Sooner or later we will see a correction on the market. It doesn’t matter too much whether this will happen in one or in three years from now if one considers the remaining upward potential of the market, especially regarding bonds,” says Tim Peeters, senior wealth manager at Portolani. “The opportunity costs of not being in the fixed income market are quite low with YTM on euro and government bond indices below 1.5%. The question is just how central banks will be able to handle market turmoil.”

alt=''
Peeters sees the European government bond market as one of the areas most at risk in case of commotion. “I only invest in short-duration bonds, and on the government bond market you should bring your duration back to zero, by going short on bonds of some countries.”

To prepare or not to prepare?

Tristan Delaunay, ceo of Paris-based Athymis Gestion, is less concerned about risks posed to government bond investors. “The German Bund is risk-safe, and 60% of French government debt is today owned by Asian investors, who I believe will not quickly resort to mass-selling of their holdings.”

Delaunay is more worried about the seeming unresponsiveness of markets to external events like the civil war in Iraq and the downing of the passenger airplane in rebel-held Eastern Ukraine earlier this month. “This is abnormal, but after all this period of low volatility could be a long-term phenomenon as well.” 

  • Can M&A and buybacks breathe life into UK market?

    Can M&A and buybacks breathe life into UK market?

    Both buybacks and M&A should help realise value in UK shares, boosting prices and giving investors another reason to consider the UK stockmarket Not only does M&A activity appear to be picking up, with a high-profile bid for UK electronics retailer Currys, but the scale of company buybacks continues to accelerate. If it goes well,…

  • Capital Group launches multi-thematic Article 8 funds

    Capital Group launches multi-thematic Article 8 funds

    Capital Group has launched a set of multi-thematic sustainable funds that are available for investors in Europe, writes Christian Mayes. The Capital Group Sustainable Global Opportunities fund (LUX) will invest in global equities, while the Capital Group Sustainable Global Corporate Bond fund (LUX) will target fixed income exposure. The launch also includes a multi-asset offering…

  • Bond funds pull in €29.7bn in January – LSEG

    Bond funds pull in €29.7bn in January – LSEG

    Bond products were the best-selling asset class in January, according to LSEG Lipper’s European Fund Flow report, writes Christian Mayes. The asset class pulled in a net €29.7bn in the month, while Money Market USD grouping was the best-selling Lipper Classification after receiving €11.2bn inflows. Providers of mutual funds pulled in €22.5bn, while passives saw net…

  • Quarter of Article 8 funds at risk of greenwashing – MainStreet Partners

    Quarter of Article 8 funds at risk of greenwashing – MainStreet Partners

    A quarter of all Article 8 funds could be accused of greenwashing based on their sustainability framework and practices, according to MainStreet Partners, writes Christian Mayes The 24% of funds classified as a greenwashing risk by the 2024 ESG Barometer report marks a four percentage point increase from the 20% flagged at the end of…

  • EU green rules could stymie decarbonisation projects – ExxonMobil

    EU green rules could stymie decarbonisation projects – ExxonMobil

    The European Union’s climate regulations may lead to it halting its investments in Europe, ExxonMobil has warned. Speaking to the Financial Times, Karen McKee, president of the product solutions division, said the oil and gas giant had struggled to begin decarbonisation projects in Europe due to the regulatory burden. The result, she added, was that…

  • ICE flags need for Europe to double green investment

    ICE flags need for Europe to double green investment

    Investments to modernise energy and transport must double by the end of the decade to reach 2030 climate targets, the EU has been warned. According to the Institute for Climate Economics (ICE), which has released the European Climate Investment Deficit report, the bloc lacks what it calls a “consistent tool” to ensure monitoring of the…