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European investors return to bond and equity markets

Update

European investors have piled back into fixed income and equity funds, with both asset classes enjoying their best inflows for months.

Morningstar’s European Asset Flows data for January showed equity funds attracting their highest inflows since this time last year, with €25.3bn flowing into the market across active and passive offerings. Fixed income funds fared better still, with €33.7bn of net inflows giving this asset class its best month since July 2021, while passive bond funds chalked up their best month ever.

ESG remained popular in Europe, with both Article 8 and Article 9 funds attracting net new assets. Article 8 funds were boosted by €24bn, while Article 9 funds attracted €2.6bn in net inflows.

However, the picture was less rosy across the whole market, with many of the recent winners finding themselves in the red for January. Money market funds started shedding cash after a run of positive flows, with €9.5bn leaving the asset class. Ultra-short-term bond funds denominated or hedged in Euros also suffered, with €3.2bn withdrawn by investors, while commodities lost €689m over the month.

By house, Eurizon took the heaviest losses, with €2.2bn withdrawn from the manager, followed by Ruffer, from which investors took back more than €1bn. By contrast, iShares topped the list of asset-gatherers, with €10bn of inflows (excluding money market funds), with Pimco in second spot.

Across the board, Europe-domiciled long-term funds enjoyed a positive month, with a net €54bn entering the market, making this the best month since December 2021. This left the market at €10.7trn, up from December's €10.35trn.

Valerio Baselli, senior international editor at Morningstar, said ‘After a forgettable 2022, the new year is off to a good start for the European asset-management industry. Investors showed positive sentiment and took advantage of the attractive valuations of equity and bond markets, pouring €54.1 billion into long-term Europe-domiciled funds during January 2023, marking the best monthly result in terms of flows since December 2021.

‘Overall,’ he said, ‘stock markets started 2023 on a strong footing, with gains across global equities, on expectations that the pace of interest-rate rises would ease as inflation starts to cool. China’s reopening after dropping the Zero Covid policy in late December also helped propel the advance.’

Link: https://www.investmentweek.co.uk/news/4076436/european-investors-return-bond-equity-markets