Euro fund numbers mask thin trading

European funds posted net sales of €22 billion (£20 billion) in January.

European funds posted net sales of €22 billion (£20 billion) in January. This is the third consecutive month in positive territory and their best sales performance for 14 months, a report in Lipper FMI’s monthly Fund Flash says.

However, according to the report, rather than being a sign of better times to come, the numbers mask the real story of thin trading activity.

The report says net inflows only hit a high point because of cyclical flows into French market funds (€25 billion). Without that, the industry would have closed in redemption.

Equities posted inflows of €2 billion, the third consecutive positive month despite stockmarket falls, while bond funds posted their first month of inflows for more than a year.

The equity sector “contained an embedded distortion from exchange traded funds (ETFs),” notes Lipper. Without the ETF contribution, equities showed redemption of €4 billion, “acting as a reminder that the financial crisis is far from over”.

All other asset classes were in redemption, with mixed asset funds suffering the biggest loss of €2.2 billion.

The group with the strongest net flows was Barclays, with €3.5 billion of net sales. The group with the strongest equity net sales, excluding ETFs, was M&G, with €390m of inflows.

According to Lipper, January is normally Europe’s best month of the year and tends to set the stage for trading activity. The French post large amounts into money market accounts while others establish portfolio allocations for the year.

Lipper FMI says that January’s inflows were a large improvement on like-for-like sales last year (€1 billion). But they are half the average volume set for January over the previous five-year period.

According to Lipper, the most positive aspect of January’s figures is that redemption levels have shrunk. “Investors remain resistant to taking on further risk but they seem prepared to tolerate existing positions,” the firm concludes.

It observes the trend towards bond investing is starting to spread throughout Europe.

“The Italian haemorrhage slowed to a mere €1.9 billion. This allowed the British corporate investment grade bond sales to push the asset class into positive territory,” says the report.

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