European investors ditch equity funds for fixed income in April


European investors continue to favour fixed income funds with April inflows almost doubling from the previous month to €20.2bn, according to Morningstar data.

Net inflows of €11.6 billion in March broke a year-long trend of outflows from the asset class, following the ECB’s announcement that it would expand its asset purchase programme to investment-grade non-bank corporate bonds.

“Whereas in March investors focused on funds that would benefit directly from the ECB’s new buying program, in April they showed broader trust in the asset class, favouring funds with higher risk such as those investing primarily in high-yield and emerging-markets bonds,” says senior manager research analyst for Morningstar Matias Möttölä.

In an interview with Fund Strategy in May, Möttölä warned the impact of the ECB’s monetary policy on fixed income inflows could be temporary, based on the way European investors responded to the announcement of the government bond buying programme in March last year.

The ECB this week confirmed further details of its corporate bond buying programme, which will begin on 8 June, including that it would not be forced to sell any bonds it already held that fell to junk status becoming so-called fallen angels.

The central bank further clarified its definition of a bank, which includes issuers supervised under the Single Supervisory Mechanism or a parent company subject to banking supervision outside the euro area.

Issuers that conduct investment activities on a professional basis according to Mifid II will also be excluded from the programme.

Equity funds suffered a different fate to fixed income in April, experiencing their fourth month of outflows, despite generally positive returns.

Large-cap equity funds suffered the most, with European large-cap equity suffering the most in euro terms with €2.6bn of outflows.

For the year to date, Japan large-cap equity has seen the largest outflows at €3.6bn, in contrast to the almost non-stop inflows the category has seen since the launch of Abenomics in 2012.

In terms of fund providers, UBS saw the largest inflows due to the successful launch of its Multi Manager Access II High Yield fund, which experienced inflows of €5bn in its first month.

Standard Life experienced the largest outflows totalling €2.3bn.