European flows to bonds not a confidence vote in the euro, Morningstar warns

LONDON | Is that a global bond boom we have before our eyes? Morningstar research said the latest European asset flow data showed that long-term funds enjoyed a strong first quarter this year, receiving more than €50 billion of new investor assets. Of this, more than 70 per cent went to fixed-income funds, while equity funds, by contrast, had net redemptions for March and only slightly positive inflows between January and March.

Morningstar report contained some of the main funds’ behaviour in the last three months. BNP Paribas took in the greatest inflows for the quarter with about €7.6 billion, marking its strongest quarter since 2009. Bond-heavy houses BlackRock and PIMCO attracted more than €3 billion and €5.5 billion, respectively.

Dan Lefkovitz, from Morningstar’s European research team, commented, though, that:

“recent European flows to bond funds should not be interpreted as a vote of confidence in the euro zone. Investors are clearly differentiating between troubled governments and profitable corporations, and between the indebted West and cash-flush emerging markets.”

Indeed, of the quarterly inflows into fixed-income offerings, those focused on corporate debt, corporate high yield, and emerging markets dominated.

Long-term equity funds saw a mildly positive quarter, attracting just over €2 billion in inflows; equity-focused fund groups Fidelity and DWS saw quarterly outflows. For equity investors, emerging-markets and income-oriented funds proved most popular; Aberdeen Global Emerging Markets had inflows of €1.5 billion for the quarter, and M&G Global Dividend and Templeton Asian Growth saw inflows of nearly €1 billion each.

Global emerging markets allocation was the fastest-growing category of any meaningful size, seeing quarterly organic growth in inflows of 34%.

Long-term funds absorbed more than €16 billion of investor assets in March; fixed-income funds took by far the largest share, with inflows of nearly €14 billion during the month. But equity funds saw the greatest March outflows of any asset class, with net redemptions of €1.3 billion.