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Europe’s active asset managers face an unprecedented challenge in dealing with continued mutual fund outflows.
Investors have pulled €258bn from actively managed equity funds since the start of 2022, with a further €140bn withdrawn from multi-asset and alternative funds, Morningstar data shows.
However, passive product providers have prospered from investor demand, with inflows to index and exchange traded equity funds totalling €256bn.
Passive bond funds garnered €174bn over the same period.
This article was previously published by Ignites Europe, a title owned by the FT Group.
Asset managers have never before had to face such a prolonged period of redemptions from European mutual funds.
Prior periods of outflows have tended to be restricted to relatively short periods, even if the withdrawals have been large, such as in 2008, 2011 and 2018.
By contrast, aggregate net outflows from active funds are continuing well into their third year in 2024.
Bond funds are a brighter spot for active managers, gathering net inflows in both 2023 and the early months of 2024.
Passive funds have enjoyed aggregate net inflows in each of the five years in this analysis, totalling €828bn across equity and bond funds. Even in years when active funds have attracted inflows, clients have still been net contributors to passives.
Prior to 2022, active equity funds attracted net inflows in both 2020 and 2021, totalling €239bn in the latter year. But these products then faced outflows of around €100bn in both 2022 and 2023.
By contrast, active fixed income funds shook off the outflows they experienced in 2022, with demand rising to €73bn of inflows in 2023 and then €89bn over the first four months of 2024 — outstripping all passive funds.
One feature of European fund inflows before 2022 was the demand for sustainable products. Sustainable equity funds had inflows of €256bn in 2021 alone.
This has clearly declined for actively managed funds over more recent years, Morningstar data shows.
However, client interest in non-sustainable active equity funds has turned negative much more significantly than for their sustainable cousins.
Net flows to actively managed sustainable equity funds total €29bn since 2022, but non-sustainable active funds have suffered net outflows of €285bn over the period.
In addition, net inflows to sustainable passive funds have remained positive in each year since 2020.
Meanwhile asset managers can look to rising equity and bond markets to help increase European fund assets. Active equity and multi-asset managers will hope that this will help improve sentiment towards their products.
The MSCI World index rose 24.4 per cent in 2023, while the Bloomberg Global Aggregate Bond index was up 16.2 per cent. This followed falls for both asset classes in 2022.
Amin Rajan, chief executive officer of asset management consultancy Create-Research, said active managers have been responding to outflows with varying approaches.
“Some are improving their investment capabilities and fee structures, while some are diversifying into inefficient markets where informational inefficiencies are ripe,” he said.
He added that some fund houses had diversified into “fast-growing” private markets assets or resorted to mergers and acquisitions to “improve their operating leverage”.
“In institutional portfolios, active and passive funds tend to complement one another. Passives are focusing on efficient markets and actives on inefficient markets,” said Rajan.
*Ignites Europe is a news service published by FT Specialist for professionals working in the asset management industry. Trials and subscriptions are available at igniteseurope.com.