Europe’s fund growth eclipses US
The pace of European investment fund industry growth overtook that of the US for the first time in several years over the period from September 1997 to September 1998, with asset levels increasing by 25%, according to the latest EFID report, published last month by Lipper.
Following a period of strong growth over 1996-97, it had been thought that the stockmarket tremors sent out by the Asian and Russian economic crises might have rocked the confidence of European investors. It seems, however, that faith in the markets’ ability to recover has stood firm – while index depreciation cut into levels of existing assets, inflows re-mained positive, with many investors apparently seizing the opportunities provided by low price levels to in-crease their holdings.
But it was the bond sector which acted as the driver of fund industry growth. Bond fund assets grew by $239.1bn (E224.8bn), or more than half of the overall industry growth figure of $471.7bn.
Much of this new money came from the Italian market, where banks have, for some time now, been very active in encouraging investors to divest themselves of their government bond holdings in favour of bond funds. This, along with a heightened level of awareness of funds in general, has propelled the Italian market into the premier league of European fund domiciles – Italian fund assets grew by over 100% in local currency terms from September to September, making Italy Europe’s second largest market for mutual funds, after France.
Another indicator of health for any fund industry is the amount of new offerings launched over any given time period. Again, Italy put on a strong showing, with 57 new funds over the year, or an increase of nearly 10%, adding more than $10bn to fund assets. But of all the domestic fund markets, it was Spain which saw its industry expand the most in terms of numbers of funds. Spanish management groups launched 414 new funds onto the Spanish market – an increase of almost a third. Of these, by far the most popular sector was that classed as ‘other’, which includes most notably, guaranteed funds. Not far behind, though, was the bond sector, which had 123 new fund additions.
Europe’s largest mutual fund market, France, also grew at a healthy rate (more than 12%) in terms of fund numbers, and more than 40% of its 394 launches were in the equity sector. This can be seen as proof, if any were needed, of the growing equity culture in continental Europe. Although still only the third largest investment sector in asset terms, there are now more share-based portfolios in France than any other type of fund – a situation which was inconceivable just three years ago.
Of these new equity funds, as in many domiciles, the most prominent geographical investment focus was Europe, closely followed by domestically investing portfolios.
However, taken as a whole, more domestic equity funds were launched throughout Europe’s markets than any other type of share-based fund. In other words, excluding ‘offshore’ centres, more equity funds were launched which invested in their own domicile’s market than in any other market or combination of markets. In Spain for example, 56% of new equity launches invested solely in Spain – more than twice the number which invested globally. These European, domestically investing funds made up almost a third of all new equity funds.
Close behind were global-investing funds, which made up a quarter of new equity funds, but catching up fast were those investing in Europe. The economic crises of 1997 may not exactly have washed out the European investor’s parade, but any drizzle blowing in from the East has certainly, it seems, led investors to seek the familiar shelter of markets closer to home, where the economic climate is a little more predictable.
Of the ‘offshore’ centres, it was Luxembourg, predictably enough, given the size and maturity of its industry, which produced the largest amount of new funds. With 519 launches over the year, Luxembourg went crashing through the long-awaited 4,000-fund barrier, its industry growing by 15% by numbers of funds. Again, equity funds made up the lion’s share of these new offering.
In many ways, Luxembourg is a microcosm of the European industry as a whole, and a look at the profile of these new funds is, perhaps, the most telling way of seeing what is going on beyond the Grand Duchy’s borders. Although far more globally investing equity funds were launched (28% of the total) than any other type, these only attracted 21% of new equity fund assets. Conversely, those funds which invested only in Europe made up just 17% of new equity funds, but took no less than 60% of new equity fund assets. New Asian equity fund assets, meanwhile, barely registered on the scale.
How long this penchant for all things European will last, however, is difficult to predict. With Asian markets settling down and recent fears being voiced of a significant US-UK market correction on the way, it may only be a matter of time before European investors finally decide that the domestic equity bandwagon has driven over one too many bumps.
If this ends up being the case though, it seems unlikely that it will hit the fund industry for some time to come. A bandwagon at full tilt is hard to turn round, and, if the southern European markets are anything to go by, it still has a long way to run.