Quarterly Review: European fund managers beat back US rivals

European asset managers staged a fightback against their US rivals in 2014 in the best year for fund sales in Europe since the 2008 financial crisis.

BlackRock, the world's largest fund manager, retained the top European spot for a second successive year in spite of a drop in net inflows across Europe to €29.2bn, a fall of 9.9 per cent from the previous year.

Other large US managers, however, were overtaken by their European competitors, according to information from Lipper, the data provider.

JPMorgan reported a 23 per cent drop in net sales last year, falling to third place behind Intesa Sanpaolo. Fund sales for the asset management arm of Italy's largest bank tripled to €16.8bn in 2014, pushing it up the rankings from ninth place in 2013 to second spot.

Franklin Templeton, the third-best selling manager in 2013, crashed out of the top-25 rankings following investor withdrawals from its emerging markets and natural resources funds.

Detlef Glow, head of European research at Lipper, says domestic European managers enjoyed their best year for sales for more than a decade, helping them to make up ground lost in previous years to their larger international rivals.

"European investors were looking for specialist portfolio managers to meet their growing demand for multi-asset investment strategies, rather than investing with global asset management groups," said Mr Glow.

He added that Intesa Sanpaolo's achievement in taking second place behind BlackRock might have surprised some observers but Italy was the leading country in Europe for fund sales, with inflows of €47bn last year. This provided a boost to several Italian managers.

Vanguard, the world's second-largest asset manager, registered a 68 per cent rise in its European net fund sales, to €14.4bn, helped by aggressive price cuts across its ETF range. But Vanguard's ranking dropped from fourth to sixth as it was overtaken by both UBS and Deutsche Asset and Wealth Management.

After reporting outflows in 2013, UBS pulled in just over €16bn last year while sales for DeAWM jumped to €16bn from just €1.8bn 12 months earlier.

Bragging rights for the bestselling fund of the year went to Richard Woolnough, whose M&G Optimal Income fund pulled in a net €7.3bn in 2014.

The enduring draw of star managers was also underlined by the Woodford Equity Income fund, the first product launched by Neil Woodford after his departure from Invesco Perpetual. The fund was the fourth-best seller in Europe, with net sales of €5.1bn in 2014.

The growing appeal of exchange traded funds was highlighted by the first appearance of two ETFs, run by BlackRock and Vanguard, in the top-10 best sellers. They track Wall Street's S&P 500 index.

Across Europe, investors ploughed a net €366.8bn into mutual funds in 2014, almost double the previous year's total and just shy of the annual sales record of €372bn set in 2006.

Bond fund sales rose for a seventh consecutive year, reaching €164bn, but equity fund sales were a third lower than in 2013, at just €60bn.

Mr Glow says sales of broadly based European corporate bond funds were boosted by investors' requirements for income and yield.

Mr Glow also highlighted strong demand for mixed-asset funds, with net sales of €125bn across Europe. This was a reflection of investors' desire for portfolio diversification in "an increasingly fraught geopolitical environment".

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Net sales of European mutual funds (excluding money market funds) dropped 63 per cent to just over €25bn in the three months to the end of December, from €67.9bn in the previous quarter.

In October, more than half of the fund managers surveyed for the monthly Bank of America Merrill Lynch report said they were concerned that earnings-per-share estimates for European companies were too high.

The survey also suggested global investors were retreating from Europe. Only a net 4 per cent remained "overweight" in October.

Those factors were reflected in equity fund outflows. In the international category - defined by Lipper as those funds that do not generate four-fifths of their sales from a single European market - equity fund sales turned negative with net redemptions of €8.9bn. This followed positive sales of just under €10bn in the previous quarter. The UK, Germany and France all reported negative equity fund sales for a second successive quarter.

Investor confidence in the fourth quarter was also affected by the uncertain outlook for monetary policy at the time, specifically whether Germany could be persuaded to allow the European Central Bank to expand its asset purchase scheme to include sovereign bonds.

Those concerns persisted for much of the fourth quarter until Mario Draghi, the ECB president, announced in January that he was ready to undertake full-blown quantitative easing, including the buying of sovereign bonds.

The uncertain outlook for fixed income assets was reflected in a sharp fall in bond fund sales in the "international" category. They dropped 83.2 per cent to €2.1bn, from €12.5bn in the previous three months.

In the race for investors' cash in the fourth quarter of 2014, BlackRock regained its hold on the top spot for European cross-border fund sales from JPMorgan Asset Management, which slipped back to third behind Vanguard.

Looking forward to the rest of this year, analysts say European fund sales should benefit from a combination of favourable tailwinds.

Nick Nelson, global equity strategist at UBS, says that lower oil prices, quantitative easing by the ECB, a weaker euro, less fiscal austerity and improvements in credit conditions will provide support for European asset markets this year.

The slide in the euro towards parity with the dollar is particularly important as this should "support eurozone exports, bolster inflationary pressures and, most importantly of all for the equity market, provide a boost to corporate profits", says Mr Nelson.

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