Investor behavior in Europe mirrors the worst crises in the market, according to new research

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Investor behavior in Europe mirrors the worst crises in the market, according to new research

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

Russell Boyce | Reuters

LONDON – European fund flow patterns so far this year are emulating historical periods of crisis for markets, including 2008 global financial liquidity, according to new research from data firm Refinitiv.

A sluggish market environment, lingering concerns over the Covid-19 pandemic and emerging geopolitical tensions in Europe have meant that the continent’s fund industry has experienced net outflows in February leading to overall flows so far this year at -57.2 billion euros (-63.2 billion dollars), according to the research.

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

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

“Therefore, it is somewhat surprising that European investors have sold money market products, which are usually considered safe-haven investments.”

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 around € 9 billion of outflows even in such a turbulent market environment. These money market products are liquidity-like funds with a low level of risk and usually offer investors high liquidity.

“However, European investors appear to be considering rising interest rates caused by rising inflation rates around the world as they further sold bond products during February,” Glow added.

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 noted that ETF inflows in this market environment repeat a trend that has been observed during previous difficult market periods, such as the financial crisis in 2008 or the euro sovereign debt crisis in 2011. In both cases, ETFs saw inflows while mutual funds experienced massive outflows.

Refinitiv’s analysis of February’s best-selling and best-selling Lipper Global rankings indicated that European investors were still in a “risk mode” despite the challenging market environment.

“More specifically, European investors have taken positions in sectors that can offer diversification for their portfolio, such as global equities or flexible mixed asset products,” Glow added.

“A closer look at the best-selling and best-selling global Lipper rankings for the first two months of 2022 makes it very clear a trend that European investors have sold some of their safe-haven investments while investing in funds that can offer diversification for their portfolio or are focused on single themes, sectors and countries “.

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