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Ali Masarwah, MorningStar

European funds industry suffers with large-scale exit from long-term funds, says Morningstar


Investors exited European domiciled long-term funds in October in a scale last seen at the height of the eurozone crisis in August 2011, when long-term funds suffered net outflows of EUR35.3 billion, according to Morningstar’s latest Asset Flows Commentary.

This October was, Morningstar says, by and large, a typical story of a switch towards risk-off.
The clearest indication that investors switched to the risk-off mode in October were the record inflows taken in by money market funds, which stood at a whopping EUR52.8 billion.
Morningstar says that due to the combination of outflows and pummelling asset prices, assets invested in long-term Europe-domiciled funds took a dip, falling from EUR8.636 trillion in September to EUR8.350 trillion per 31 October. The main detractor for the fund industry was the negative equity market effect, which chipped away more than EUR223 billion from the value of equity funds.
The biggest divergence of the European fund market between active and passive was seen in the bond space. While actively managed funds suffered outflows of a whopping EUR13.2 billion, passively managed funds took in net EUR1.7 billion, which mostly targeted open-end index funds. These divergent trends played out in several categories, indicating a secular shift away from actively managed to passive bond funds – even in less-liquid market segments which have, until now, generally been considered as the domain of active managers.
Most notably, investors’ sentiment for technology and US growth funds soured markedly. Here, active and passive funds were both beset by outflows. The same holds true for European and US small-cap funds, which were also redeemed irrespective of the active-passive divide. It was a different story for the largest equity fund category, global large-cap blend funds. Actively managed global large-cap funds took in net EUR1.3 billion, thus bucking the negative trend.
Ali Masarwah (pictured), Director, EMEA Editorial Research at Morningstar, says: “What started as a trickle in September evolved into a stampede in October. Investors exited European domiciled long-term funds in a scale last seen at the height of the eurozone crisis in August 2011.”
Valerio Baselli, Senior Editor, EMEA Editorial Research at Morningstar, says: “The European fund market was yet again the scene of a sharp divide: While actively managed long-term funds bled heavily, shedding EUR36.4 billion, index funds continued to garner net inflows, which stood at EUR1 billion; well below previous months’ levels, but comfortably in positive terrain.”

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