European Ucits and AIF investment funds experienced net outflows of 278 billion euro last year, the biggest level since the financial crisis of 2008, according to industry statistics compiled by the European Fund and Asset Management Association, Efama. In 2021 these funds managed to attract 888 billion euro in new sales.
At the end of December, net assets of European investment funds, comprising Ucits and AIFs, stood at 19,139 billion euro, down by 12.4 percent and falling below the 20,000 billion euro threshold for the first time since the summer of 2021. Ucits funds suffered net outflows of 175 billion in 2022, the first full-year decline since 2011, according to Efama.
The full-year decline was partly offset by a relatively strong performance in December as equity funds attracted net inflows during the last month of the year, despite a decline in stock markets, and weaker expectations of future increases in interest rates rekindled investor interest in bond funds. Net sales of long-term Ucits funds rose to the highest level since January 2022.
ETFs attracted new money last year
Exchange Traded Funds and sustainable funds classified as Article 9 under the EU’s Sustainable Finance Disclosure Regulation, SFDR, continued to attract net new money last year, despite difficult market conditions, Efama said.
“This outcome confirms that investor demand momentum, particularly institutional investors, remains with ETFs thanks to their low costs and trading flexibility, and with sustainable funds due to the expected long-term benefits of a sustainable investment approach in terms of lower downside risk and ESG impact,” said Bernard Delbecque, Efama’s senior director for economics and research.
Equity funds recorded net outflows of 72 billion euro last year. These net outflows represented 1.2 percent of the value of equity fund assets at the end of 2021. The slowdown in economic growth triggered by Russia’s war against Ukraine and the tightening of monetary policy undermined investor confidence and led to sharp falls in stock markets and net outflows from equity funds.
Outflows ‘moderate’
Considering the significant worsening of the economic, financial and geopolitical environment, these outflows can be viewed as moderate, Efama said.
Bond funds recorded their worst year since 2008. They suffered net outflows of 137 billion euro, or about 4 percent of their net asset values at the start of 2022. Higher interest rates led to capital losses for bondholders, while the expectation that interest rates would continue to increase for some time deterred investors for most of the year.
Multi-assets funds were the most popular type of long-term Ucuts and attracted 14 billion in new money. The greater diversification across asset classes gave these funds a competitive advantage in a down year for stock and fixed-income markets.
Despite a challenging year, money market funds ended the year with positive net sales of 14 billion euro. This was a direct consequence of record-breaking net inflows in October (124 billion euro), when the investment market crisis in the UK triggered pension funds to sell government bonds and park large amounts of cash into Sterling MMFs domiciled in Ireland.
For exchange-traded funds, 2022 was a good year, Efama said. Net flows remained positive at 85 billion eur thanks to ETF’s low costs and trading flexibility.
Robust demand for Article 9 funds
Demand for SFDR Article 9 funds remained robust. Efama said that these funds, which have an explicit sustainability objective, attracted 26 billion euro of net new money. This outcome is even more noticeable, Efama said, given the fact that many fund managers reclassified their Article 9 funds to Article 8 during the second half of the year as a result of the clarification provided by Europe’s financial supervisory authority ESMA in June 2022 on the SFDR regulatory technical standards for Article 9 funds.
Net sales of Alternative Investment Funds, known as AIFs, turned negative for the first time ever to 101 billion euro in outflows. Efama said that this development can be explained by the decision taken by several pension funds in the Netherlands, and to a lesser extent in Denmark, to stop managing their assets within AIF wrappers and make more use of segregated mandates due to the new IFR/IFD prudential rules. Net sales of AIFs in other European countries remained positive and totaled 112 billion euro.