What are the trends driving the European fund industry?

By Detlef Glow

The general economic outlook for the second half of 2022 and beyond is marked by geopolitical tensions in Europe and Asia, high inflation rates, rising interest rates and disrupted delivery chains.

The difficult market conditions are often linked to mutual fund outflows and therefore it is no surprise that the European fund industry has been faced with overall outflows for 2022 since the start of the year.

If a fund promoter faces cash outflows, they often begin to review their existing product lines to close unprofitable funds or merge funds with similar investment objectives, as this reduces costs and helps maintain the profitability.

But fund promoters don’t just close funds, they also launch funds that fill gaps in their product lineup to provide their clients with a one-stop solution and take advantage of new emerging trends.

That said, it is somewhat surprising that the number of funds available to investors in Europe has increased in the first half of 2022 in the current market environment.

A closer look at the underlying flow trends shows that money market products saw the highest outflows. This means that long-term mutual funds have done relatively well in this market environment. Mixed assets, equities, real estate and “other” funds benefited from inflows (please refer to our fund market review for more details on underlying flow trends).

A more detailed view of inflow numbers by asset type shows that ESG-related funds were enjoying strong inflows. Given the high inflows during 2020 and 2021 and the shift from conventional funds to ESG-related products aligned with Articles 8 and 9 of the Sustainable Finance Disclosure Regulation (SFDR), strategies ESG-related investment products have moved from niche to mainstream and the trend towards ESG-related products is expected to continue.

Indeed, investors are increasingly aligning their portfolios with ESG-related objectives. Therefore, it is not surprising that we have seen a lot of activity regarding ESG-related fund launches and mergers of existing products into these new products.

Another trend that is often discussed but has yet to materialize in the European fund industry relates to crypto assets and underlying technologies such as Distributed Ledger Technologies (DLT) and respective supporting frameworks. . This is not really surprising since many parts of the crypto asset value chain were unregulated.

With the agreement on the Regulation on Crypto Asset Markets (MiCA), the European Commission may have started a new megatrend for investors, as the new regulation establishes clear rules for a harmonized market that will provide legal certainty for investors. issuers of crypto assets, ensure equal rights for service providers and ensure high standards for consumers and investors.

Despite the fact that issuerless crypto assets, such as bitcoin, and non-fungible tokens (NFTs) are not part of the regulation, this regulation is considered a landmark regulation that makes crypto assets investable for broader parts of the world. investment sector. Therefore, expect to see a number of product launches in this area and perhaps significant entries in these products.

The opinions expressed are those of the author, not necessarily those of Refinitiv Lipper or LSEG.

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