At the headline level, the weight of Europe’s long-term fund inflows in July was, again, close to the preceding month’s, edging up a little to €38bn (or €45bn, including ETFs). But for the first time in several months, there was a significant shift in the staple ingredients selected by investors — namely that the mixed asset class rose into first position thanks to sales of €16bn, while fixed income funds deflated into second place, taking €11bn. Of the three core asset classes, equities were left holding the proverbial wooden spoon yet again. The improved inflows of €7bn may come as a surprise, considering the strong headwinds against which the markets were leaning in July. And with another boost from ETF sales proportionally favouring equities above all, the gap between equity and bond fund sales fell to just €2bn.
High yield investors pull the plug
The appetite for high yield bond funds had begun to wane a little in the second quarter as investors rotated towards emerging market fixed income. Sales shifted into reverse gear in July, the majority of high yield sectors plummeting into the red. USD-denominated high yield funds were already in the doldrums in June and they led the rout in July with €4.6bn of withdrawals, one Neuberger Berman product accounting for almost €2bn of this. Various respected talking heads had aired concerns about valuations in the high yield space, giving investors a strong case to redeem. It is important to note that, beyond high yield, the summer sun still shone on a variety of fixed income sectors. European and emerging market funds remained firmly in favour. But, most notably, the enfant terrible of the category’s first few months of 2014, global bonds, was the cherry on the cake in July, closing in on €2bn of net sales.