The European Fund and Asset Management Association (EFAMA) has published its latest monthly Investment Fund Industry Fact Sheet, which provides net sales data on UCITS and AIFs for December 2022 at European level and by country of fund domiciliation, plus an overview and analysis of 2022.
Bernard Delbecque, Senior Director for Economics and Research at EFAMA, comments on the 2022 results, saying: “2022 was a difficult year for UCITS and AIFs, which suffered net outflows of EUR278 billion, a level not seen since the financial crisis of 2008. On a positive note, ETFs and sustainable SFDR Article 9 funds continued to attract net new money, despite difficult market conditions. This outcome confirms that investor demand momentum (particularly institutional investors) remains with ETFs thanks to their low costs and trading flexibility, and with sustainable funds due to the expected long-term benefits of a sustainable investment approach in terms of lower downside risk and ESG impact.”
Thomas Tilley, Senior Economist at EFAMA, commenting on the December 2022 figures, says: “Net sales of long-term UCITS rose to the highest level since January 2022 as equity funds attracted net inflows, despite a decline in stock markets, and weaker expectations of future increases in interest rates rekindled investor interest in bond funds.”
The main developments in 2022 can be summarised as follows:
UCITS and AIFs experienced net outflows of EUR278 billion in 2022, compared to net inflows of EUR888 billion in 2021. Net assets of European investment funds declined by 12.4 per cent, to drop below the EUR20 trillion threshold.
UCITS suffered net outflows of EUR175 billion in 2022, for the first time since 2011.
· Equity funds recorded net outflows of EUR72 billion. These net outflows represented 1.2 per cent of the value of equity fund assets at the end of 2021. The slowdown in economic growth triggered by Russia’s war against Ukraine and the tightening of monetary policy undermined investor confidence and led to sharp falls in stock markets and net outflows from equity funds. Considering the significant worsening of the economic, financial and geopolitical environment, these outflows can be viewed as moderate, according to EFAMA.
· Bond funds recorded their worst year since 2008. They suffered net outflows of EUR137 billion, or about 4 per cent of their net asset values at the start of 2022. Higher interest rates led to capital losses for bondholders, while the expectation that interest rates would continue to increase for some time deterred investors for most of the year, EFAMA says.
· Multi-assets funds were the most popular type of long-term UCITS. They attracted EUR14 billion in new money. EFAMA says that the greater diversification across asset classes gave these funds a competitive advantage in a down year for stock and fixed-income markets.
· Despite a challenging year, money market funds ended the year with positive net sales of EUR14 billion. This was a direct consequence of record-breaking net inflows in October (EUR 124 billion), when the liability-driven investment (LDI) market crisis in the UK led pension funds using LDI strategies to sell government bonds and park large amounts of cash into Sterling MMFs domiciled in Ireland, the association says.
· 2022 was a good year for ETFs. Net flows remained positive (EUR85 billion) thanks to ETF’s low costs and trading flexibility, EFAMA says.
· The demand for SFDR Article 9 funds remained robust. These funds, which have an explicit sustainability objective, attracted EUR26 billion of net new money. This outcome is even more noticeable given the fact that many fund managers reclassified their Article 9 funds to Article 8 in the second half of the year as a result of the clarification provided by ESMA in June 2022 regarding the SFDR regulatory technical standards for Article 9 funds.
· Net sales of AIFs turned negative for the first time ever (EUR101 billion). EFAMA writes that this development can be explained by the decision taken by several pension funds in the Netherlands, and to a lesser extent in Denmark, to stop managing their assets within AIF wrappers and make more use of segregated mandates due to the new IFR/IFD prudential rules. Net sales of AIFs in other European countries remained positive and totalled EUR 112bn.
Analysing the data for December 2022 in particular, EFAMA highlighted the following:
· Net sales of UCITS and AIFs totaled EUR24 billion, down from EUR53 billion in November 2022.
· UCITS recorded net inflows of EUR16 billion, compared to EUR44 billion in November 2022.
o Long-term UCITS (UCITS excluding money market funds) recorded EUR19 billion of net sales, up from EUR1 billion in November 2022.
· Equity funds registered net inflows of EUR7 billion, compared to net outflows of EUR1 billion in November 2022.
· Net sales of bond funds increased to EUR16 billion, up from EUR8 billion in November 2022.
· Multi-asset funds recorded net outflows of EUR4 billion, compared to net outflows of EUR6 billion in November 2022.
o UCITS money market funds recorded net outflows of EUR3 billion, compared to net inflows of EUR43 billion in November 2022.
· AIFs recorded net inflows of EUR8 billion, compared to net inflows of EUR9 billion in November 2022.
· Total net assets of UCITS and AIFs decreased by 2.6 per cent to EUR19,139 billion.