A health check of Europe’s mutual fund market

Jake Moeller

Jake Moeller

How does one ascertain the health of the pan-European mutual fund industry?

While I’m able to control my lifestyle factors—such as levels of exercise and diet - that may affect my health, the mutual fund market is an amorphous body of assets and liabilities that reflects an incalculable collection of differing objectives.

The lifestyle factors this industry faces include not only prevailing market conditions but the aggregated expectations of all its participants.

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Recently, there has been plenty of challenging lifestyle factors for our industry. One can go back to Black Monday in the summer of 2015 and the subsequent commodity price collapse. We have had the Brexit referendum and the Donald Trump presidential election, both providing further uncertainty.

Underlying regulatory initiatives also have directly affected the European mutual fund industry. Consider fund managers’ touch points to Mifid II, European Market Infrastructure Regulation, Basel III, Solvency II, Shareholdings Disclosure, Alternative Investment Fund Managers Directive, and Dodd Frank as well as ongoing European Securities Markets Authority and Financial Conduct Authority pronouncements.

Flows are for me a critical measure of the fund industry’s health. It is difficult to conclude that on this metric alone, the industry is not in anything but robust health. According to the most recent quarterly Thomson Reuters Lipper data, the first nine months of 2017 have set the stage for a new record year in the pan-European fund industry.

Assets under management in Europe stood at €10.2 trillion at the end of September, with the UK encompassing nearly 20 per cent of that total. We have been making good progress against the US market, which stands at some U$20trn.

Additionally, the European fund industry has enjoyed record net inflows of €614.2bn (with the UK representing around 9 per cent of that) for 2017 so far, far above the previous watermark recorded (€386bn for all of 2015).

The number for the first nine months of 2017 is well above the long-term 12-month average of €166bn. Investors too are showing a healthy regard for differing asset classes. Perhaps not as risk-averse as you may expect in light of the challenging lifestyle factors mentioned above, equities are still buoyant.

This is reflected in the flows into Lipper fund classifications: Equity Global (+€51.3bn) is the best-selling sector for the year 2017 so far, followed by Bond Global (+€38bn), Bond Global USD Hedged (+€33.9bn), and Bond EUR Short Term (+€31.2bn) as well as Bond Emerging Markets Global in Hard Currencies (+€27.5bn).

There has also been considerable product consolidation in Europe with respect to new fund launches. Some 1,400 funds have been launched in Europe and the UK for the year to date, a figure nearly 50 percentage points down from the launches for 2012.

This undoubtedly reflects somewhat healthy competitive elements in the industry.