European open-ended mutual funds have suffered net outflows every month since February, according to data from Morningstar. As we enter the chillier months, with inflation nudging double digits and central banks eyeing further rate raises, it is easy to feel pessimistic about the prospects of a rebound – a ‘Christmas miracle’ of sorts – for managers of these funds.
Meanwhile, flows into ETFs in Europe have been relatively resilient. Disenchantment with active fund managers owing to poor performance could be adding fuel to a longer-term flight towards passive offerings. But surely passives aren’t the solution for professional investors who are on the defensive? Outside of those with a low volatility tilt, equity ETFs will not provide downside protection for clients. Which asset classes and sectors then, will these investors favour? Given so many stocks are now undervalued, could there even be a cautious step towards active equity funds for certain themes or regions? When will active fund assets bottom out?
The second annual wave of Research in Finance’s European Fund Selector Study (EuroFSS) launches at a crucial time for recording fund selectors’ and institutional investors’ all-important fund flow predictions. We ask investors where they plan to invest in the coming months and whether they will choose active versus passive strategies. We don’t know quite what to expect from the upcoming results, but it’s safe to assume a clear shift from the sectors favoured when we last conducted the research (December 2021 – February 2022), please see the chart below.
The findings of EuroFSS will help guide asset managers on whether early 2023 will bring more of the same or mark a change of course, giving our clients the tools to prepare for either eventuality. We look forward to shedding light on whether investment decision makers are cautiously optimistic…or just cautious.