Morningstar Direct SM Asset Flows Commentary: Europe

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Madison Floyd
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1 October 2012 Data thru Sept 30 Morningstar Direct SM Asset Flows Commentary: Europe European Fund Investors Are Finally Getting More Positive On Stocks by Ali Masarwah, European Research Team With policymakers and central banks striving to ease the pain for troubled eurozone economies, European fund investors may be shrugging off the risk of euro implosion. Morningstar asset flow data for September suggests that investors are increasing their exposure to risky assets, and not just in the bond space. In September, equity funds received net inflows of EUR 1.91 billion, their first positive month since February. This ends a long period of disconnect between fund investor behaviour and equity market performance. Monthly Flows into European Equity Funds Bil Source: Morningstar Direct Flows to equity funds still pale in comparison to investor enthusiasm for bond funds. Investors poured another EUR 15.9 billion into fixed-income funds in September. With net inflows of EUR billion, the third quarter of 2012 saw the highest quarterly inflow into bond funds in any quarter on record (Morningstar s European asset flows data extends back to 2007). Allocation funds saw healthy net inflows of EUR 2.6 billion in September, bringing third quarter s total to EUR 6.23 billion. In sum, long-term funds welcomed EUR billion of new net money in September, bringing last quarter's total to EUR billion. Money market funds, on the other hand, suffered net outflows of EUR 18.3 billion in September, reflecting yields precariously close to negative nominal terrain if not in the red already. To learn more about Morningstar Direct Asset Flows, visit us at this link. Data Notes: The figures in this report were compiled on October 19, Over 23,000 of 29,000 funds that Morningstar tracks from 1,100 fund companies across 29 domiciles are included. Funds domiciled in Sweden are not included because they report assets on a quarterly basis only. Between 1 bn and 4 bn of AUM from these groups are not included because assets for some funds were not reported by the publishing date: Allianz and Amundi. BlueBay is not represented due to their disclosure policy. They report assets more than one month in arrears.

The biggest indicator of shifting investor sentiment was the EUR 506 million worth of inflows to Morningstar s eurozone large-cap equity category in the third quarter, its first positive quarter

2 The biggest indicator of shifting investor sentiment was the EUR 506 million worth of inflows to Morningstar s eurozone large-cap equity category in the third quarter, its first positive quarter since the first quarter of The Europe ex-uk large-cap equity category attracted its largest monthly inflow since 2008 in September (EUR 320 million). Europe large-cap value and Europe large-cap blend also attracted flows. Still, among Morningstar s equity categories, global emerging-markets equity carried the day yet again, posting net inflows of EUR 1.42 billion in September and EUR 1.75 billion in the third quarter. In spite of receding gross domestic product growth rates in China and muted performance over the past 12 months, investors still appear convinced of the long-term growth story. However, investors appear to be increasingly hedging their bets by buying diversified emerging-markets funds and redeeming single-country and BRIC funds. Beneficiaries of this trend include emerging-markets veterans Aberdeen and First State. Aberdeen Global Emerging Markets Equity, which carries a Morningstar Analyst Rating of Gold, has grabbed EUR 1.61 billion of net inflows through the first three quarters of 2012, making it the most popular fund in the category. Other funds with strong Morningstar Analyst Ratings suffered significant redemptions though. For the year to date, Gold-rated Comgest Magellan and Bronze-rated JPM Emerging Market Equity shed net EUR 583 million and EUR 1 billion, respectively, in spite of solid performance. According to Comgest, some clients switched from Magellan into the Irish-domiciled version of the fund, Comgest Growth Emerging Markets, as well as institutional mandates.

3 Conversely, Morningstar s UK large-cap blend equity, Germany large-cap equity, and China equity remained very much unloved, suffering net redemptions yet again in September. The third quarter also witnessed a sell-off among investors in US large-cap blend equity funds. Allianz US Equity suffered the most, witnessing a EUR 558 million withdrawal in the third quarter. More of the Same, Please: The Bond Fund Boom Remains Intact Morningstar data shows that yield-hungry bond investors continue to drive flows. Morningstar s global emerging bond, global high-yield, and USD high-yield funds carried the day in September and also the third quarter. Morningstar bond strategists have repeatedly indicated that shrinking bond yields might well harbour nasty surprises for corporate-bond investors. Conversely, EUR ultra short-term bond funds remained on the sell list of European investors, suffering net outflows of EUR 1.6 billion in September. EUR diversified bond and UK government bond funds were also out of favour, shedding net EUR 689 million and EUR 667 million, respectively, in September. Even seasoned observers could well be surprised by the dominance of the big names in the third quarter, with PIMCO, Alliance Bernstein, Allianz, and Axa funds topping the list of asset gatherers. Norwegian KLP Obligasjon Global was one of the few exceptions to the brand-name-heavy ranking.

Europe's largest bond fund, Templeton Global Bond, had another month in the

dominated inflows into allocation funds in the third quarter.

4 Europe's largest bond fund, Templeton Global Bond, had another month in the red. However, outflows have slowed as performance of the Silver-rated EUR 33 billion fund has rebounded. Allocation Funds: Carmignac and M&G Lead the Way Carmignac and M&G dominated inflows into allocation funds in the third quarter. M&G Optimal Income Fund and Carmignac Patrimoine remain very much in investor favour, grabbing EUR 1.4 billion and EUR 1.1 billion, respectively.

The appeal of multi-asset funds is also reflected in the substantial inflows into multi-strategy alternatives funds, which employ diverse techniques in their allocation strategies.

5 The appeal of multi-asset funds is also reflected in the substantial inflows into multi-strategy alternatives funds, which employ diverse techniques in their allocation strategies. The bulk of flows to the category owes to the popular Standard Life Global Absolute Strategy. The UK and Luxembourg-domiciled versions of the fund, which took in a combined EUR 534 million in September, had a year-to-date total of EUR 4.88 billion. It appears unclear, however, if the Standard Life success story will persist. September brought word that part of the management team will defect to Invesco, prompting Morningstar fund analysts to place both funds Analysts Ratings to Under Review. PIMCO Tops the List of Asset Gatherers by a Huge Margin With the exception of Carmignac and M&G, the top asset-gathering fund companies this year have thrived on bond funds. PIMCO collected EUR 10.4 billion in the third quarter and a whopping EUR 23.1 billion for the year to date. But momentum may be shifting. Second-ranked BlackRock saw greater inflows to equity funds than bond funds in September. September marked JPMorgan s first positive month of flows since April 2011.

Morningstar Direct SM Asset Flows Commentary: Europe

April 2013 Data thru March 31 Morningstar Direct SM Asset Flows Commentary: Europe Long-Term Funds Remain at the Top of the List for European Fund Investors in the First Quarter By Ali Masarwah, European