Despite the huge cost in terms of human lives and economic damage of the corona crisis, European Fund and Asset Management Association (EFAMA) summarises the performance of the European fund industry as ‘resilient’.
This was reflected in the Brussels-based organisation’s 2021 Factbook, published this month. It outlines the most important European trends currently affecting the fund industry.
Notable is the ever-increasing demand for ESG products, “a trend that will continue in the coming years,” says EFAMA chairman Naïm Abou-Jaoudé in the foreword.
UCITS and AIF funds on the rise
The UCITS fund range experienced a net outflow of €314 billion in March 2020 - when the global pandemic led to a Europe-wide lockdown — one of the sharpest declines in recent history.
However, the vast majority of UCITS funds were able to return to normal immediately afterwards, despite the scale of the crisis. “For the full calendar year 2020, UCITS funds attracted €474 billion in investments, significantly more than in 2019 and 2018, despite the panic sales in March,” wrote the report’s authors.
The net worth of UCITS funds was €11,600 billion at the end of last year. This was supported by net sales growing exponentially to an estimated total of €235 billion by 2020. AIFs (Alternative Investment Funds) had a total net value of €7,100 billion by the end of 2020. These funds were hardly affected by the crisis.
In addition, EFAMA states that the cost of actively managing UCITS is steadily declining in Europe. The cost of actively managed equity and bond funds fell by 11 and 18 per cent respectively between 2016 and 2020. This trend is expected to continue in the future, as more transparency on fees and pressure from passive funds remains in place.
ESG funds in the long term
Remarkably, Abou-Jaoudé mentions the strong growth of European ESG funds in recent years. Over a five-year period, ESG funds grew to a combined value of €1,200 billion at the end of last year (11 percent of all UCITS).
Strong net sales of ESG UCITS supported the growth, which increased almost exponentially to an estimated total of €235 billion despite the pandemic. EFAMA expects this development to continue.
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“ESG has become a priority for EU policymakers,” he said. “We are all in the process of implementing the EU’s Sustainable Finance Disclosure Regulation (SFDR), a regulatory game-changer because it forces asset managers to make strategic decisions about their approach to sustainability”.
However, a major obstacle is the lack of adequate ESG data. Full integration of ESG considerations into investment decisions is currently suffering, wrote Abou-Jaoudé.
ETFs benefit
The popularity of ETFs also grew again in 2020, partly due to their characteristic liquidity and low costs. “The net assets of UCITS ETFs rose steadily from 5.7 per cent of total UCITS assets in 2016 to 8.3 per cent by the end of 2020. Other passive funds have also seen their market share gradually increase, from 5 per cent in 2016 to 7 per cent in 2020,” EFAMA said in its Factbook.