Funds suffer worst outflows in a year

GIBRALTAR - JUNE 22: A pay-per-view binocular with the British and European Union flags stands at the southern tip of the peninsula the day before the EU Referendum on June 22, 2016 in Gibraltar. Citizens of the United Kingdom and its territories will go to the polls tomorrow in what many expect to be a very tight vote on whether to remain in or leave the European Union. A result is expected early Friday morning. (Photo by Sean Gallup/Getty Images)©Getty

European mutual funds suffered their worst redemptions in a year as investors concerned about the impact of the UK’s vote on EU membership pulled more than €20bn from investment products in June.

Equity funds in Europe experienced outflows of €19.2bn, while money market funds and mixed asset funds also suffered redemptions during June when the UK surprised markets by voting to leave the EU.

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In the wake of the Brexit vote, sterling dropped to 30-year lows and billions of dollars were wiped off the values of stock markets globally.

Detlef Glow, head of European, Middle East and Africa research at Thomson Reuters Lipper, the data provider that gathered the figures, said: “European investors anticipated market turmoil from the Brexit vote in the [UK] during June.”

Equity products from many of the UK’s best-known asset managers, including funds from Old Mutual, Columbia Threadneedle, Standard Life Investments and Schroders, suffered performance falls of at least 10 per cent in the week after Brexit.

June’s outflows of €20.6bn were the worst since June 2015 and were marginally worse than the €20.4bn redeemed last September, when fears of a stock market bubble in China prompted a sell-off around the world.

The share price of asset managers has plummeted in recent weeks, prompting concerns about the outlook for fund houses. Henderson’s share price is down more than 15 per cent, while Jupiter has fallen by 12 per cent since the vote on June 23.

Alastair Sewell, regional head of Fitch Ratings’ fund and asset manager group, said: “The combination of near-term Brexit-driven uncertainty, potential outflows from continental European investors and possible costs of having to establish and maintain European operations would cause UK asset managers significant challenges over the medium-term.”

Actively managed mutual funds in the US, meanwhile, suffered their worst outflows since the financial crisis in June, as investors shunned them in favour of low-cost index trackers, according to figures released this week from Morningstar, the data provider.

Some $ 21.7bn flowed out of actively managed US equity funds in June, the worst monthly figure since October 2008, while passive funds, including exchange traded funds, took in $ 8.7bn.

Moody’s, the rating agency, said that while the long-term effects of Brexit are unknown, “in the immediate aftermath, sharply lower valuations of risk assets and reduced investor risk appetite are credit negative for asset managers globally”.

Fund managers have scaled back from European equities on the back of the UK’s referendum as allocations to the asset class suffered their largest ever drop in a single month. Portfolio managers are now underweight European equities for the first time in three years, according to BofA Merrill Lynch’s July survey of fund managers.

“Europe finally belongs to the bears,” said Manish Kabra, European equity quantitative strategist at BofA Merrill Lynch.

According to Lipper, European bond funds and alternative mutual funds, which provide hedge fund-like exposure within a liquid mutual fund structure, had small inflows of €1bn and €700m respectively in June.

Real estate products also had inflows of €300m, despite concerns about UK open-ended property funds. Eight companies were forced to limit redemptions from property funds earlier this month amid fears about falling commercial real estate values across the UK following the referendum result.

Some of the affected funds, including products run by Aberdeen and Henderson Global Investors, are now attempting to offload property in order to ensure they can repay investors looking to withdraw money.

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