Fund Management

European Fund Flows Are Booming

Paul Das, 9 June 2005

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Despite rising concern over the health of the Euro and faltering economies in the major European economies, flows of money into equity, bond...

Despite rising concern over the health of the Euro and faltering economies in the major European economies, flows of money into equity, bond, and money market funds were very strong in the first quarter of 2005. Increasingly, the main beneficiary of these flows is Luxembourg.

Net flows to equity, bond, balanced and money market funds were up a staggeringly high 196 per cent in the first quarter of 2005, compared with the same quarter a year ago, to reach €98 billion ($119.8 billion), according to the latest survey by the Brussels-based European Fund and Asset Management Association. On a quarter-on-quarter basis the rise was even steeper, growing by more than 500 per cent from a total of €15 billion in the last quarter of 2004.

The EFAMA survey said the sharp recovery was mainly due to acceleration in net flows to bond funds and a rebound in the demand for money market funds, which the Association said was partly explained by seasonal factors. But equity funds also shot up, attracting €28 billion, which EFAMA said was largely due to the steady rise in stock markets observed between the end of August 2004 and the end of March 2005.

According to EFAMA, long-term Undertakings for Collective Investment in Transferable Securities (UCITS) gathered €87 billion of net flows, compared with €48 billion in the fourth quarter of 2004 and €79 billion in the first quarter of last year.

Luxembourg-domiciled funds were the major beneficiary of this surge in fund flows—attracting 56 per cent of total flows to UCITS. EFAMA said the performance confirmed the importance taken by global fund management groups operating from Luxembourg. It also showed the growing number of fund providers setting up roundtrip funds in Luxembourg to the detriment of their domestic markets.

Following a standstill in the last quarter of 2004, net sales of French-domiciled funds recorded a rebound to €30 billion. Despite record outflows from money market funds, Spain stood third in this ranking, followed by Austria and the UK.

Notwithstanding the poor performance of its home-domiciled equity funds, Germany enjoyed net sales that had not been seen since the first quarter of 2003. Finally, Italy continued to suffer from net redemptions, albeit at a slowing rate thanks to the good sales performance of bond funds.

Total net assets in UCITS increased by 5.1 per cent in the first quarter, according to the EFAMA study. The high level of growth was almost evenly distributed across all fund categories, with equity and bond funds leading the way. Funds of funds also performed well, partly reflecting the reclassification of two Belgian-domiciled bond funds into the funds-of-funds category.

Since end March 2004, total assets in the UCITS rose by 9.8 per cent, with almost equal growth of equity and bond fund assets, 12.8 per cent and 12.3 per cent respectively.

Looking at the development in the major markets, Luxembourg recorded the highest asset growth in the first quarter (7.8 per cent), followed by Ireland (6.7 per cent), the UK (5.9 per cent), France (4.7 per cent), Spain (3.2 per cent) and Italy (-0.2 per cent).

Nordic and Central European countries continued to show above average growth performance, especially in Hungary (23 per cent) and Finland (15 per cent). Elsewhere in Europe, almost all countries experienced asset growth between 3 and 5 per cent, except in Turkey (12.8 per cent), Netherlands (0.2 per cent) and Greece (-1.6 per cent).

Looking at the country share in UCITS asset domiciliation, Luxembourg strengthened its number one position with a market share of 25.1 per cent.

Total assets in the non-UCITS market rose by 4.2 per cent in the first quarter to €1,204 billion. For two quarters in a row, special funds reserved for institutional investors, which represent about 62 per cent of the non-UCITS market, benefited from €14 billion in new cash—a strong performance compared to the trends observed in 2003 and 2004.

Most of the sales were recorded in Germany (€9.8 billion) and Luxembourg (€2.3 billion).

The combined assets of the investment fund market in Europe, i.e. the market for UCITS and non-UCITS, increased by 4.9 per cent in the first quarter to total €5,604 billion at end March 2005; total net assets rose by €262 billion from the end of 2004.

Three countries (Luxembourg, France and Germany) had a market share of 57.7 per cent at end March 2005, with Luxembourg recouping the number one position which it had lost from France in 2002; the UK, Ireland and Italy followed in this ranking.

With €4,400 billion invested in UCITS, this segment of the business accounted for 78.5 per cent of the fund market at end March 2005.

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