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European mutual funds continue to bleed profusely
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European active asset managers face an unprecedented challenge amid continued outflows from mutual funds.
Investors have withdrawn €258 billion from actively managed equity funds since the start of 2022, as well as another €140 billion from multi-asset and alternative funds, according to Morningstar data.
However, providers of passive products have thrived on investor demand, with flows into index and exchange-traded equity funds totaling €256 billion.
Passive bond funds collected 174 billion euros over the same period.
This article was previously published by Set Europe on firea title belonging to the FT group.
Asset managers have never faced such a long period of redemptions from European mutual funds.
Previous outflow periods have tended to be limited to relatively short periods, although withdrawals have been significant, such as in 2008, 2011 and 2018.
In contrast, overall net outflows from active funds continue until their third year in 2024.
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Bond funds are a more promising sector for active managers, collecting net inflows in 2023 and early 2024.
Passive funds benefited from overall net inflows in each of the five years of this analysis, totaling €828 billion for equity and bond funds. Even during the years when active funds attracted capital flows, clients were still net contributors to passive funds.
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Before 2022, active equity funds attracted net inflows in 2020 and 2021, totaling €239 billion in the last year. But these products then faced capital outflows of around 100 billion euros in 2022 and 2023.
In contrast, active bond funds have overcome the capital outflows they experienced in 2022, with demand reaching €73 billion in inflows in 2023, then €89 billion in the first four months of 2024 , thus surpassing all passive funds.
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One of the features of EU fund flows before 2022 was the demand for sustainable products. Sustainable equity funds recorded inflows of €256 billion in 2021 alone.
This figure has clearly declined for actively managed funds in recent years, according to Morningstar data.
However, client interest in non-sustainable active equity funds has turned negative far more than for their sustainable cousins.
Net flows into actively managed sustainable equity funds total €29 billion since 2022, but non-sustainable active funds suffered net outflows of €285 billion over the period.
Additionally, net inflows to sustainable passive funds have remained positive every year since 2020.
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At the same time, asset managers can look to rising stock and bond markets to boost European fund assets. Active equity and multi-asset managers hope this will help improve confidence in their products.
The MSCI World Index is up 24.4 percent in 2023, while the Bloomberg Global Aggregate Bond Index is up 16.2 percent. This follows declines for both asset classes in 2022.
Amin Rajan, managing director at asset management consultancy Create-Research, said active managers have responded to capital outflows with a variety of approaches.
“Some are improving their investment capabilities and fee structures, while others are diversifying into inefficient markets where informational inefficiencies are rife,” he said.
He added that some fund companies had diversified into “rapidly growing” private markets assets or had used mergers and acquisitions to “improve their operating leverage”.
“In institutional portfolios, active and passive funds tend to complement each other. Liabilities focus on efficient markets and assets focus on inefficient markets,” Rajan said.
*Ignites Europe is a news service published by FT Specialist aimed at professionals working in the asset management sector. Trials and subscriptions are available at igniteseurope.com.