LONDON | The dramatic meltdown of confidence in the euro zone’s economic performance left the European fund industry suffering almost €70 billion in flows out of equity funds in 2011. Data colected by Morningstar European funds show that over €119 billion were extracted from long-term funds last year, and although money market funds still saw strong inflows in December, with €4.4 billion, flows to short-term funds were negative for the last 12 months.
The figures include over 27,000 of 31,000 funds that Morningstar tracks from 1,100 fund companies (branding names) across 29 domiciles, and confirm that investors’ their capital moved out of a scenario crowded with bad news and uncoordinated political decisions. Where to?
“A clear trend was visible within the money market space for December and the year as a whole. British pound and US dollar money market funds saw inflows, likely from investors fleeing the euro,” the report states.
“This, after money market funds as a whole experienced more than €100 billion in net outflow during 2010.”
Morningstar analysts mentioned the new European regulation as a partial cause of the investors’ reaction, as it forced money market funds to become more conservative to improve their safety, which has dented yield potential.
Yet, the report also warned those taking their money out of European funds about the perils of letting headlines get to their investment plans. Syl Flood, Product Manager at Morningstar, acknowledged it has been a poor year for the European sector due to macroeconomic and market uncertainty, though cautioned investors of running after the latest rumours:
“[the current situation has] clearly scared investors away from all kinds of funds, with outflows seen in equities, fixed income and money market funds. Even guaranteed funds, apparently designed to outperform in any market, weren’t popular. Only allocation funds saw net positive inflows.
“The wash of money out of funds in the face of a difficult year for asset markets is understandable, but our research into investor returns also shows that investors often cost themselves by selling near the bottom or buying after an asset class has risen.
“They charge themselves with transaction costs and taxes that might otherwise be avoided.”