July 2017 Data through June 30 Morningstar Direct SM Asset Flows Commentary: Europe European Investors Continued to Pile Up on Their Investments in Fixed-Income Funds in June By Matias Möttölä, CFA, Associate Director, EMEA Manager Research As equity markets went through another month of negative returns in June, European investors continued to pile up on their investments in fixed-income funds. Europe-domiciled bond funds received net inflows of EUR 29.0 billion in June, the second-highest monthly tally since Morningstar started to publish European asset flows figures in 2007. Total inflows for bond funds rose to EUR 152.2 billion in the first six months of the year, a record for semiannual net inflows into the asset class. Records were broken also at the total market level as June s strong net inflows of EUR 53.4 billion propelled Europe-domiciled long-term open-end funds to a new semiannual record tally of EUR 285.0 billion, according to Morningstar s estimates. Not included in the figure are money market funds, which have seen inflows of EUR 33.8 billion for the year to date. Main beneficiaries of the rush to bond funds were USD-hedged global flexible-bond funds and, specifically, the PIMCO GIS Income Fund, which has a Morningstar Analyst Rating of Silver. The fund amassed net inflows of EUR 4.1 billion during the month and took the mantle of Europe s largest openend fund. Other bond categories with high flows were a mix of relatively low-risk investments (EUR ultra short-term bond) and higher-yielding funds (global emerging-markets bonds). Three continuous negative months for the global stock market (in euro terms) have not frightened investors away from equities. Open-end equity funds registered net inflows of EUR 5.5 billion in June after strong flows already in April and May. Global emerging-markets and global large-cap blend funds were the main beneficiaries, while investors withdrew assets from US equity funds reeling from the weakening US dollar. Allocation funds continued to see strong inflows across a wide range of categories, raising their tally for the first half of the year to EUR 72.9 billion. Flows by Global Broad Category Group (Open-End Funds) Market Share % Estimated Net Flow (EUR Mil) Name 6-2017 6-2017 1-Mo QTD YTD YTD Allocation 1,214 14.37 14,292 42,757 72,881 6.51 Alternative 426 5.05 5,484 14,475 26,216 6.51 Commodities 16 0.19 (55) (69) 615 3.63 Convertibles 65 0.77 (486) 577 518 0.82 Equity 2,955 34.99 5,510 17,728 29,567 1.06 Fixed Income 2,347 27.79 29,028 80,399 152,331 6.87 Property 124 1.47 0 1,204 3,357 2.64 Miscellaneous 125 1.48 (436) (1,013) (626) (0.49) Unclassified 5 0.06 74 289 269 4.68 All Long Term 7,278 86.17 53,410 156,347 285,127 4.16 Money Market 1,168 13.83 (31,651) (19,960) 33,768 2.87 Total 8,446 100.00 21,759 136,387 318,895
Fund-Level Categories: Largest Inflows Investor interest was again high for Silver-rated Invesco Pan European High Income, the largest fund in the EUR cautious allocation Morningstar Category. The fund saw inflows of EUR 503 million in June, which lifted its quarterly net inflows to EUR 1.1 billion. Managed by Paul Read, Paul Causer, and Stephanie Butcher, the fund has beaten the category average by a wide margin while also taking somewhat higher risk than the average peer. The fund saw its assets rise above EUR 9 billion at the end of the month for the first time. Within the global emerging-markets bond Morningstar Category, Templeton s Emerging Markets Bond Fund saw the largest inflows, with EUR 567 million. The Bronze-rated fund s current assets under management of EUR 5.5 billion are still far below the EUR 7.2 billion of April 2013, after which it saw two years of underperformance. In 2016, the fund again beat its average category peer, and assets have grown fast for the year to date. Fund-Level Categories: Largest Inflows (Excluding Money Market Funds) (EUR Bil) Global Flexible Bond - USD Hedged 77 4,458 11,898 21,529 38.19 Other Bond 153 4,191 10,625 25,260 18.88 EUR Ultra Short-Term Bond 98 3,193 5,238 7,942 8.92 EUR Cautious Allocation 120 2,665 6,686 10,670 9.86 Global Emerging Markets Bond 120 2,656 9,422 16,604 15.88 EUR Moderate Allocation - Global 172 2,580 6,157 11,821 7.51 Alt - Multistrategy 184 2,360 6,903 14,262 8.22 Global Emerging Markets Equity 226 2,071 3,281 6,149 3.05 EUR Cautious Allocation - Global 119 1,910 5,366 8,697 8.01 Global Emerging Markets Bond - Local Currency 70 1,827 5,482 10,496 17.85 Fund-Level Categories: Largest Outflows US equity funds were hit by heavy outflows in June as European investors reallocated their portfolios away from US companies, whose stock prices have fallen in foreign currencies as the US dollar has lost value. Altogether, four US equity categories were among the 10 with largest outflows in June. Hardest hit were funds in the US large-cap blend equity Morningstar Category, with the category s largest fund, Fidelity America, seeing the largest outflows of EUR 558 million. For the year to date, the fund has had EUR 1.9 billion of outflows, 21% of its assets at the start of the year. Within the USD corporate bond Morningstar Category, Generali Investment s Diversification USD Corporate Bond Fund AAA-A saw its assets cut in half after net outflows of EUR 1.5 billion in June, according to Morningstar data. Generali has seen total outflows of EUR 2.9 billion from its funds for the year to date. These are the third-highest asset losses within the European industry after Aletti Gestielle (EUR 4.0 billion) and Standard Life Investments (EUR 3.7 billion).
Fund-Level Categories: Largest Outflows (Excluding Money Market Funds) US Large-Cap Blend Equity 182 (1,140) (2,765) (4,547) (2.44) UK Equity Income 95 (922) (1,870) (3,117) (3.22) USD Corporate Bond 40 (868) 411 2,063 5.17 US Mid-Cap Equity 12 (545) (855) (394) (3.04) US Large-Cap Value Equity 35 (525) (2,183) (3,148) (8.12) Global Large-Cap Value Equity 67 (522) (1,329) (2,111) (3.10) US Large-Cap Growth Equity 42 (522) (881) (2,318) (5.54) EUR Inflation-Linked Bond 11 (516) (719) (879) (7.35) Fixed Term Bond 77 (504) 217 2,349 3.29 UK Small-Cap Equity 19 (441) (172) (285) (1.67) Fund Providers: Largest Inflows There were no challengers to PIMCO s dominance in June. The US-based company gathered all of EUR 5.8 billion of assets into its Europe-domiciled open-end funds during the month, taking its year-to-date total flows to EUR 27.0 billion euros. To put the flows into perspective, they correspond to 29% of PIMCO s total assets at the end of 2016. June s flows were enough to push total assets in PIMCO s Europe-domiciled funds beyond their peak levels of 2013. Alongside PIMCO, BlackRock has also benefited from the strong interest in fixed-income products in Europe. Its EUR 2.8 billion of inflows in June closed a stellar second quarter with inflows of EUR 10.2 billion. More than half of BlackRock s second-quarter inflows landed in its bond funds, with funds investing in UK corporate bonds, emerging-markets local-currency bonds, and UK gilts leading the way. In Amundi s case, investor interest has focused on fixed-income and allocation funds in 2017. Its fixedincome success has been driven by cautious funds such as Amundi 6 M, which sits in the EUR ultrashort-term bond category, whilst its most popular allocation fund has been the First Eagle Amundi Income Builder, which sits in the USD moderate allocation Morningstar Category. Fund Providers: Largest Inflows (Excluding Money Market Funds) PIMCO 121 5,815 15,535 26,997 28.87 Amundi 125 3,477 6,827 12,922 11.63 BlackRock 279 2,757 10,229 18,55 7.18 M&G 92 2,033 4,084 8,143 9.87 Invesco 125 1,713 4,485 7,875 6.89 Eurizon Capital 131 1,704 6,310 11,502 9.84 Allianz Global Investors 112 1,695 4,551 7,77 7.54 Natixis 78 1,331 3,401 3,757 5.09 AB (AllianceBernstein) 57 1,231 3,252 5,894 11.10 Vanguard 92 1,078 2,234 6,961 8.29
Fund Providers: Largest Outflows Both Standard Life and Aberdeen, whose proposed merger was approved by shareholders and U.K. s Competition and Market Authority in June, saw further outflows that month. Investors continued to withdraw assets from both the UK- and Luxembourg-based versions of SLI s Global Absolute Return Strategies. Standard Life Investment s total outflows for the quarter rose to EUR 1.9 billion. According to Morningstar data, SLI s net flows have been negative for 13 months in a row. Aberdeen s outflows centered on its equity funds with a total of 54 Aberdeen equity funds seeing negative flows during the month. However, asset losses this year are smaller than the outflows the company had suffered in recent years. Fund Providers: Largest Outflows (Excluding Money Market Funds) Generali 20 (1,610) (2,740) (2,876) (12.34) Sydinvest 4 (987) (1,381) (1,682) (32.21) Standard Life 79 (673) (1,934) (3,718) (4.50) Aletti Gestielle 15 (622) (1,888) (3,973) (24.95) AXA 89 (600) (45) (330) (0.38) Aberdeen Asset Management 52 (444) (1,288) (2,033) (3.96) Stone Harbor Investment Partners 8 (424) (889) (936) (10.00) BBVA 25 (346) (849) (1,640) (6.35) BankInvest 10 (345) (379) (433) (4.41) Danske Invest 52 (343) 49 (2,031) (3.86) The Largest Open-End Funds The huge inflows of EUR 4.1 billion into PIMCO GIS Income lifted the fund to become the largest Europe-domiciled fund, surpassing Sweden s AP/ Aktiefond equity fund. The fund has seen unprecedented inflows in 2017 with over EUR 18 billion of new investor assets just in the first six months, doubling the fund s size in the period. PIMCO is focused on the size of the fund versus its broader mandate and opportunity set, though, and is confident the fund can still meet its performance and income goals; it's not thinking about closing the strategy. That's understandable, but we'd prefer to see the firm consider sheltering the fund's allocation from dilution, wrote Morningstar s associate director Mara Dobrescu, CFA, in an analysis of the fund in June. Assets at Carmignac Patrimoine have been fairly flat since the summer of 2015. The fund was at its largest already in May 2013, when it had EUR 30.3 billion of assets. It carries a Morningstar Analyst Rating of Bronze.
10 Largest Long-Term Funds by PIMCO GIS Income Fund 38.3 4,141 10,816 18,921 95.26 AP7 Aktiefond 35.8 (11) 292 969 2.95 SLI Global Abs Ret Strat 26.6 (581) (1,710) (3,078) (10.19) Carmignac Patrimoine 24.5 (158) (181) (72) (0.30) M&G Optimal Income Fund 21.8 532 1,316 2,847 15.27 AB FCP I Global High Yield Portfolio 21.3 457 1,467 3,537 19.04 JPM Global Income Fund 20.1 546 1,238 2,913 17.41 DWS Top Dividende 19.5 114 331 688 3.72 Nordea 1 - Stable Return Fund 18.7 (37) (9) (114) (0.62) Templeton Global Total Return Fund 17.6 153 503 212 1.19 To learn more about Morningstar Direct Asset Flows. visit us at this link. Data Notes The figures in this report were compiled on July 25, 2017. Approximately 28,000 of 31,000 funds that Morningstar tracks from over 1,700 fund companies across over 30 domiciles are included. Organic growth rate is flows as a percentage of beginning assets.