European Fund Management Assets Reach Record

Terry Flanagan

Assets held by European investment funds broke through the €11 trillion mark for the first time last year according to The European Fund and Asset Management Association.

Efama said in its latest Investment Funds Industry Fact Sheet that net sales of European investment funds reached €601bn last year, a 46% year-on-year increase.

Bernard Delbecque, director of economics and research at Efama, said in a statement: “Net sales of European investment funds rose to an all-time high of €601bn in 2014 and assets under management broke through the €11 trillion mark thanks to a growth rate of 15%. This was all achieved despite sluggish growth, deflationary threats and geopolitical tensions.”

Delbecque said the record net sales were down to four key factors – the search for returns in a low rate environment; investor protection; the great variety of and risk-return profiles available in the investment fund market and actions of central banks.

Bond funds had the largest net sales of €198bn, more than double the sales of €79bn in 2013 as investors continued to expect long-term interest rates to fall. Balanced funds had net sales of €186bn while equity funds registered net sales of €55bn, down from €97bn in 2013.

“In this uncertain macroeconomic environment, the demand for balanced funds soared to a record level as the asset diversification and risk reduction offered by this type of fund continued to attract many investors,” added Delbecque.

Money market funds registered net outflows of €5bn last year, less than the net outflows of €83bn in 2013.

Delbecque said: “This confirms the view that many European businesses and institutions use money market funds as a short-term cash management tool even if they offer close-to-zero returns.”

Ken Orchard, portfolio manager, of European fixed income at T Rowe Price, said in a note last week that the the European Central Bank’s asset purchases could boost the eurozone economy in the second half of this year. In January the ECB said it would launch a €1.1 trillion quantitative easing program. From March the central bank will expand its asset purchases to include bonds of eurozone governments, agencies and European institutions.

Orchard said the weakness of the euro against almost all currencies will boost eurozone exports, while removing a lot of sovereign debt from banks’ balance sheets will increase lending to the private sector.

However Orchard said economic growth is still likely to be low when compared to peers and there is likely to be significant divergence between members. He expects Germany and Austria to grow above the average rate while countries that have structural problems, such as France and Italy, are likely to have near-zero growth rates.

T Rowe Price estimated that the ECB will buy around €425bn of sovereign bonds this year, which is about 220% of net issuance. “From that perspective, we believe the ECB’s impact on the eurozone government bond market is likely to be greater than the Fed had on US Treasuries,” Orchard added.

Orchard said the ECB’s action will be supportive for riskier assets in Europe as government bond yields are likely to remain at low levels.

As a result, investors in search of higher yielding assets could head further down the credit-quality curve in bond markets. He added: “Alternatively, they could decide to invest more of their money in stock markets, thus driving up European share prices.”

Last week Bloomberg reported that Leon Cooperman, who runs Omega Advisors, said in an investor letter in January that he expects the European and Japanese equity markets to outperform the US in the coming year.

This year the Stoxx Europe 600 Index had its highest return in January since 1989 as it rose 7.3% with the reinvestment of dividends.

Featured image via Dollar Photo Club

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