Investor behavior in Europe reflects the worst market crises, new research finds

Traders at BGC, a global brokerage firm in London’s Canary Wharf financial centre, react to the opening of European stock markets early June 24, 2016 after Britain voted to leave the European Union during the EU BREXIT referendum.

Russell Boyce | Reuters

LONDON — European fund flow patterns so far this year mimic historic periods of crisis for markets, including the global financial cash of 2008, according to new research from data firm Refinitiv.

A lackluster market environment, lingering concerns around the Covid-19 pandemic and emerging geopolitical tensions in Europe meant that the continent’s fund industry saw sharp outflows in February that took overall flows up to present this year at -57.2 billion euros ($-63.2 billion), according to research.

Mutual funds – pools of investors allocated by fund managers into stocks, bonds, money market instruments and other securities – faced 67.6 billion euros in outflows in February alone. Meanwhile, exchange-traded funds (ETFs) – baskets of securities that trade on regular exchanges – benefited from inflows of 9.2 billion euros.

“In this market environment and given the economic uncertainties, one would expect European investors to sell long-term funds and buy money market products,” said Detlef Glow, head of Lipper EMEA research. Refinitiv.

“Therefore, it is somewhat surprising that European investors sold money market products, which are normally considered safe havens.”

The overall flow figures were heavily impacted by 49.4 billion outflows from money market products – short-term debt investments – meaning that long-term funds actually only faced to around €9 billion in releases, even in such a turbulent market environment. These money market products are cash-like funds with a low level of risk and generally offer investors high liquidity.

“Nevertheless, it appears that European investors are priced in to higher interest rates – caused by rising inflation rates around the world – as they sold more bond products during February” , added Glow.

In the first two months of the year, mutual funds recorded outflows of €91.9 billion while ETFs recorded inflows of €34.7 billion.

Glow pointed out that inflows into ETFs in this market environment repeat a pattern that has been seen in previous difficult market times, such as the financial crisis in 2008 or the euro sovereign debt crisis in 2011. in both cases, ETFs saw inflows while mutual funds suffered outflows.

Refinitiv’s analysis of the global Lipper top and bottom rankings for February indicated that European investors were still in “risk mode” despite the tough market environment.

“In more detail, European investors have taken positions in sectors that can provide diversification for their portfolio, such as global equities or flexible mixed-asset products,” Glow added.

“A closer look at the global Lipper best and worst selling classifications for the first two months of 2022 very clearly shows a trend that European investors have been selling some of their safe haven investments while investing in funds that can offer diversification. for their portfolio or focus on unique themes, sectors and countries.”

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