European investors placed their confidence in bonds during 2024, with the asset class experiencing €295.9bn (£248bn) in inflows throughout the year, according to LSEG Lipper.
Showing some hesitancy towards the market environment, equities attracted just €136.3bn, while money markets drew €274.4bn. There are signs that the attitude towards the equity market may be ready to shift, however, as the asset class experienced the largest inflows for the month of December. Only real estate funds and mixed-asset funds experienced outflows for the year in double digits, with mixed-asset losing the most at €66.7bn.
Detlef Glow, head of Lipper EMEA research, said in the past year, some investors likely used money markets as a replacement for cash and bonds due to interest rates. The attractive interest rates could also be the reason that mixed-asset saw outflows in 2024, as Glow suspects some of that allocation may have gone towards pure bonds.
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“With regard to the still somewhat inverted yield curves for the eurozone and other major economies in the world, it is somewhat surprising that European investors favoured bond products over the course of the year,” Glow said.
“That said, the inflows into bonds might be seen as a sign that European investors adjusted their portfolios to the new environment with regard to the interest rate policies of central banks around the globe since the major central banks have further lowered their interest rates despite somewhat different economic environments in the respective regions/countries.”
Inflows to money markets and bonds came primarily through mutual funds, but were also aided by ETF sales. However, the table flipped for equities, which saw inflows of near €200bn through ETFs, but was dragged down by a withdrawal of over €50bn from mutual funds. The trend has led to speculation that for equities, outflows are coming from active mutual funds and going into passive ETFs. However, Glow said he would not “totally agree with this assumption”.
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“The trend toward passive investment vehicles is widely discussed by market observers and asset managers, so it is worthwhile to highlight this topic, especially as not all passive products are ETFs,” Glow said.
“In fact, the flows into ETFs (€256.4bn) were outpacing the flows into passive index mutual funds (€65.2 bn) by a large margin. In line with this, actively managed long-term mutual funds had inflows of €47bn for 2024.”
By sector, a homefield advantage did not do European assets any favours across the year, as equity Europe and equity UK faced the largest outflows. Equity UK lost €23.8bn in the year in flows, while equity Europe dropped €19.9bn. Four of the 10 sectors which lost assets were multi asset. At the other end of the table, European money markets saw the largest inflows, followed by equity global and equity US.
“Given the current market environment, it was not surprising to see so many mixed-assets classifications on the opposite side of the table since European investors seem to be readjusting their portfolios to the new environment in the bond markets after the central banks around the globe lowered their interest rates and may continue to do so in the foreseeable future,” Glow said.
“The same might be somewhat true for equity classifications since investors adapt their portfolios to a new regime of divided economic growth trends in the different major regions/countries around the globe.”
This story was written by our sister title, Portfolio Adviser
