In a recent report, Stifel Nicolaus Equity Research noted European mutual funds saw long-term flows turn negative as volatility and interest rate concerns in the U.S. spilled into the global markets. YTD asset gathering remains solidly positive with all major asset classes (apart from commodities) participating. The research firm anticipates flow recovery through July, similar to what we are seeing in the U.S. industry, as investors adjust to the new macro environment.
The European/cross-border market is a key distribution center for U.S. asset managers with global capabilities. The firm noted that the flows provided in the report incorporate cross-border assets that are likely sourced primarily from Europe, but may include some from other regions (Asia) that come through funds registered in Luxembourg or Ireland.
Q2 annualized organic growth down to +4.7%
June long-term outflows brought Q2 annualized organic growth down to +4.7% versus 10.9% for Q1. Fixed income and allocation products lead YTD growth, but fixed flows reversed sharply in June while allocation flows maintained momentum. Equity funds sustained outflows with volatility impacting Global products the hardest. Euro-centric funds showed modest recovery led by U.K. equity.
Large U.S. managers have been able to source supplemental growth
The large U.S. managers have been able to source supplemental growth through European channels by scaling their operations and providing attractive products. The top four YTD asset gatherers in Europe are based in the U.S. BLK, BEN, and IVZ, in particular, and are currently positioned to capture trends outside of the U.S. with appropriate positioning in global and allocation strategies.
U.S. focuses on Europe’s funds structure
Stifel continues to identify Europe as a significant opportunity for U.S. asset managers to gather assets, given the relative market size (one-third of the world’s investable assets) and structural changes that have improved the competitive dynamics. U.S. companies that have built a presence in Europe are benefiting from the move toward open-architecture, an emphasis on the “fund” structure due to better transparency, and interest by investors in “global” products and away from Euro-centric investments. The European market displays similar organic flow trends to the U.S., and provides a supplemental asset gathering channel for those companies with access and attractive products. While this market faces similar headwinds in the form of ETFs and alternatives, the pressures of each are less intense than in the U.S.