FUND FLOWS European Investors Favor Emerging Markets Funds
May 16, 2011
European mutual fund investors, puzzled by the absence of any clear direction on major financial markets in recent months, have been keeping a relatively low profile this summer. Investment professionals say that despite further cuts in interest rates in continental Europe, flows of money into mutual funds were slow through July and August, with the exception of some peripheral asset classes, notably emerging markets. ``Although the trend in Europe is towards lower rates, the move in the U.S. to raise interest rates means that there has been some uncertainty about what to do,'' said Nagy Banister, spokesman for Deutsche Bank's mutual fund unit DWS in Frankfurt. `Investing in Peripheral Markets' ``The markets have been drifting ... which goes some way toward explaining the fact that our big sellers over the last two months have been funds investing in peripheral markets,'' said Eleanore Porterfield Grainger at Fleming Fund Managers in Luxembourg. She added that, across continental Europe, the group's funds investing in India, China, Eastern Europe, Latin America and European smaller companies have proved the most successful in sales terms recently. The picture presented by national data compiled for The Vast Press Europe's monthly fund-flow report paints a very different picture compared to the situation this time last year. Then, with interest rates coming down in both Japan and the U.S., investors were eager to stuff money into global equity and bond funds. This July, however, investors have been much more hesitant to jump, fearing that after such a strong run so far this year, major markets could be near their peak. As a result, international equity funds reported either stagnant sales or -- in most cases -- a net outflow across most major European markets. The only exception was the U.K., where the so-called ``equity culture'' that favors stock markets over bond markets is better established. Even there, though, sales of international equity funds were down, showing a paltry net inflow of only 11.7 million pounds ($18.2 million) compared with June's much stronger 342.9 million pounds net intake. ``Retail sales in July were fairly heavily biased towards the U.K. ... (with) 85% concentrated in the U.K. while net sales of Europe funds halved compared with (June),'' said the U.K.'s Association of Unit Trusts in a statement accompanying the latest data. Reported Slow Sales International bond funds also reported slow sales in a number of key markets, notably France and Germany. However, Swiss investors took up some of the slack in that asset class by playing what looks like a straightforward currency game, betting that the U.S. dollar would recover against the Swiss franc. Swiss investors pumped a net 400 million Swiss francs ($334.8 million) into dollar-denominated bond and money-market funds in July, making those two asset classes the best-selling sectors in Switzerland in that month. In Germany, money-market funds were again the major losers, shedding a net 1.1 billion marks ($744.6 million) in July as they continued the negative trend of recent months. Money-market funds are a relatively new phenomenon in Germany, only having been introduced in the last two years. They recorded swift growth in the months following their introduction in late 2009 but today, with German interest rates heading lower, investors now appear reluctant to remain locked into such a relatively low-yielding -- albeit secure -- investment category. However, some German fund marketers said they believed that the downturn in money-market-fund sales wasn't likely to last. ``This is a short-term phenomenon. The overall trend is that money-market funds will gain ground over the next two to three years,'' said Roman Diep, a spokesman for Union Investment in Frankfurt. One category that, on past performance at least, has provided the higher returns German investors appear to be seeking without sacrificing the all-important sense of security, is that of the open-ended real-estate funds which have been forced on a buying spree in Germany, London and the Netherlands as they seek to invest the flood of new money into the funds. According to July data, the real-estate funds continued their recent spectacular growth pattern through July, adding a net 847 million marks to assets under management.
