Concerns about rising inflation, monetary tightening, supply chain problems, Russia’s invasion of Ukraine and strict Covid measures curbing the Chinese economy dominated investor sentiment in the first half of 2022. The speed and intensity of the sell-off that hit fast-growing, highly-rated, and loss-making companies in particular was relentless.
But not only did the high-flyers that thrived during the Covid pandemic see their prices implode, bond investors also saw a decades-long bull market come to an abrupt end. The impact of the plot twist on the financial markets was also clearly reflected in the fund flows for the first six months of 2022.
At the asset class level, European investors sold off mainly fixed-income funds. Total outflows of nearly EUR 85 billion in the first half of 2022, of which more than EUR 28 billion was realised in June alone, represented the largest six-month outflow from bond funds since Morningstar began measuring fund flows in 2007.
Investors sought better alternatives within allocation funds, which have seen EUR 26 billion flow in so far, while equity funds also proved popular with over EUR 19 billion inflows. Within asset classes, however, there was considerable dispersion in fund flows.
Preference for passive
Within equities, for example, European investors again showed a clear preference for passive funds. ETFs and index funds saw over EUR 51 billion of inflows, while actively managed funds lost almost EUR 33 billion on balance. In equity ETFs, investors preferred global large-cap equity trackers, with the iShares Core MSCI World ETF and the Vanguard FTSE All-World ETF taking the biggest bite out of the EUR 19.6 billion inflow.
Emerging market ETFs were also remarkably popular, taking second place with inflows of EUR 5.5 billion.
Despite the substantial outflow for active investment funds as a whole, there are still categories that could count on (renewed) interest from European investors. Here too, the global large-cap category, with inflows of EUR 16.2 billion, was the most popular, but it is above all the value categories that are crawling out from under the mothballs.
Actively managed global dividend funds, for example, saw record inflows of EUR 10.8 billion over the first six months. Fidelity Global Dividend, which has a Morningstar Analyst Rating of Silver, received inflows of almost two billion euros, DWS Invest ESG Equity Income, which has a Bronze rating, grew by 745 million euros, while M&G Global Dividend, which has a Silver rating, received inflows of 711 million euros.
Other asset classes such as US large-cap value funds, global large-cap value funds and European large-cap value funds also recorded inflows for actively managed funds.
Passive wins for fixed-income
Within fixed-income securities, there was a huge difference between active and passive. Passive funds ended the first half of the year with a positive balance sheet of over EUR 22 billion, while actively managed bond funds had to deal with EUR 108 billion of outflows. Within both active and passive, European investors had a preference for government bonds, with US government paper the most popular for passive investors, while investors in active bond funds preferred European government bonds.
It is clear that investors have had a rough ride, but it seems that investor optimism has not been completely shaken. Looking at fund flows within allocation funds, one of the winners over the past six months, the riskiest allocation funds have been the most popular. The asset classes with the highest exposure to equities have welcomed the most inflows, while the more conservative profiles, often dominated by bonds, have seen outflows.
Taking stock of the first half of the year, and changing the lens through which we analyse fund flows to that of asset manager level, it is clear that passive investment solutions providers are the clear winners. iShares leads the list with net inflows of EUR 28.8 billion, followed at some distance by Amundi with inflows of EUR 14.7 billion, while Vanguard completes the scoop with EUR 7.6 billion of inflows.
Equity ETFs give iShares win
iShares’ first place was mainly due to the inflows it realised within its equity ETFs. The iShares Core S&P 500 ETF exceeded the net inflow of the aforementioned iShares Core MSCI World ETF with an inflow of EUR 5.7 billion. The iShares Edge MSCI World Value Factor ETF, the iShares Agribusiness ETF and the MSCI Brazil ETF were also on investors’ radar.
The breakdown of inflows for the first half of 2022 looked completely different for Amundi. Here, it was the Amundi IS MSCI Emerging Markets tracker, with inflows of just over EUR 4 billion, that came out on top. The Lyxor Core STOXX Europe 600 ETF followed with around half the net inflow, while the top 10 also included a Physical Gold ETC and a Eurobond ETF.
Finally, for Vanguard, the FTSE All-World UCITS ETF was the largest source of inflows, but we also see the Vanguard US Government Bond Index Fund and the FTSE All-World High Dividend ETF on the podium.
Jeffrey Schumacher is director of research at Morningstar. Morningstar analyzes and rates mutual funds based on quantitative and qualitative research. Morningstar is one of Investment Officer’s knowledge partners and ranks five investment funds or providers each week.
This article originally appeared in Dutch on InvestmentOfficer.nl.
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