Despite the strong start to 2013, equity flows into the European asset management industry soon began to fade and have been negative for the past four weeks. Although flows into fixed income products were more resilient, they too have seen significant net outflows over the last two weeks. The value of many financial assets – especially those in emerging markets – has also declined recently, potentially implying negative asset returns for some fund managers in 2Q13.

Goldman Sachs Group Inc (NYSE:GS) said in a recent report that they are moving more neutral on asset managers vs. exchanges & IDBs and they believe that the current risk to AUM and net inflows reported by the asset management stocks under GS coverage in 2Q13 is biased to the downside.

Asset Management

The Asset Management Stocks:

After a long period of outperformance relative to the exchange & IDB stocks under GS coverage, the asset management stocks GS cover have started to underperform. The European asset management stocks under GS coverage have strongly outperformed the exchange and  inter-dealer broker names for most of the past 12 months.  Over recent weeks however this trend has reversed.

bond flows

bond flows

Part of a Cyclical Recovery

Goldman Sachs Group Inc (NYSE:GS)’s report concluded with the belief that the recent pick-up in volatility should aid a cyclical recovery in transaction volumes in financial markets, particularly as year-on-year comparisons begin to ease in 2H13. They are particularly optimistic about the potential for greater interest-rate uncertainty to drive volumes in fixed income and interest rate products, which asymmetrically trade on over-the-counter (OTC) markets, rather than on exchange platforms. They attribute this reversal in relative performance to the weaker fund flows and recovery in volumes highlighted above. Insofar as they expect these trends to persist, they believe that the relative outperformance of asset management stocks will – at the very least – pause, until the flow environment becomes more supportive.