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Dramatic allocations shift as global fund sales

Investors around the world poured almost $1trn (726bn, £599bn) into funds during 2013, roughly the same as the year before, but changed their allocations "dramatically", according to an annual report on the global funds industry issued by Strategic Insight.

The shift last year saw investors pass over traditional bond funds in favour of equity, multi-asset, non-traditional income, and alternative strategies, Strategic Insight (SI) said, in itsState of the Global Fund Industry report.

European funds, including cross-border products, played an important role on the global stage in 2013, accounting for half of worldwide flows, with a “notable expansion among local European structures”, according to the New York-based industry research and business intelligence organisation.

Adding in performance gains, worldwide assets under management grew $3trn, the Strategic Insight data revealed.

Jag Alexeyev, head of global research at Strategic Insight, said net inflows into equity funds worldwide last year “slightly” surpassed those of the peak years of 2006 and 2007, touching $610bn.

“But other asset classes and themes also offered big opportunities for fund managers, especially outside the US,” he added.

“Demand for non-traditional income, liquid alternatives, and asset allocation solutions expanded, and will continue to rise alongside the equity revival.”

Outside US, active strategies still prevail 

Mutual funds in the US accounted for three-quarters of the global net flows to equity products last year, of which more than 60% was invested in index funds and ETFs, according to SI.

“In contrast, outside the US, just one-quarter of equity flows went to passive strategies,” it said.  
However, outside the US, active strategies continue to dominate. Here, SI found that active fund managers benefited from “substantial gains through non-traditional bond, mixed asset, and other long-term funds”.

“Overall, actively-managed funds captured $570bn of net inflows worldwide during 2013, of which three-quarters was generated outside of the US.”

Europe fund sales up 12% in 2013

Looking at Europe in particular, Strategic Insight’s researchers found that the Continent’s funds industry, including its cross-border sector, attracted €320bn ($425bn) of net inflows during 2013, up 12% from the prior year, excluding money market vehicles.

The growth “was driven by local European funds, whose inflows doubled and surpassed €100bn,” SI noted. 

“Cross-border international funds based in Europe, which are also sold in other markets such as Asia and Latin America, gained €220bn, 8% less than in the year before.
“Equity strategies captured 33% of inflows to European and cross-border funds during 2013, compared to just 4% in the year before. Similarly, mixed asset funds attracted 31% of inflows, rising from 10%.” 

Bond funds saw their share of the total European fund pie diminish, but still accounted for 30% or €100bn of net gains; “much of this went to high yield, global unconstrained multi-sector bond, and flexible income strategies”, while specialist segments such as convertible bond and senior loan funds also experienced growth.

2013 will, SI says, thus “be remembered in Europe as one of the more balanced years on record, with roughly equal contributions to the two main asset classes and to multi-asset vehicles, providing opportunities for a broader range of firms”.

 Other key findings of the State of the Global Fund Industry report:

  • “Meaningful opportunities for local and international fund managers” appeared last year in parts of Asia, “notably in Japan, where flows grew by almost four times to reach $45bn, primarily through new launches”
  • In Hong Kong, retail gross sales of local and cross-border funds expanded by 30% to a record high, as a surge in multi-asset income products in the first half gave way to rising sales of equity strategies through the end of the year
  • Including contributions by Asian investors to European cross-border funds, total net new assets raised in Asia exceeded $60bn in 2013, according to Bryan Liu, head of Asia research at Strategic Insight; but this sum was dragged down by China, where investors net-redeemed $25bn, mostly from equity funds, as the multi-year stagnation of its stock markets took its toll

Strategic Insight is a division of Asset International, which provides data, research and marketing programmes to the asset management and insurance industries throughout the world. The company has offices in New York, Boston, Hong Kong, London, Melbourne, Toronto and Stamford, Connecticut.

To see Strategic Insight’s full State of the Global Fund Industry report on its website, click here.(Those who are not already SI subscribers will be asked to register and will be contacted, the company said.)

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