The asset class pulled in a net €29.7bn in the month, while Money Market USD  was the best-selling Lipper Classification after receiving €11.2bn inflows.

Providers of mutual funds pulled in €22.5bn, while passives saw net inflows of €21bn.

Detlef Glow, head of Lipper EMEA research at LSEG, said: “Within the current market environment, it is not surprising that European investors bought further into money market products since the Eurozone and other major economies have an inverted yield curve. This means that money market products offer a higher yield than medium- or long-term bonds.

“More generally, long-term funds and money market products enjoyed inflows for the month. These flow numbers might indicate that European investors are further readjusting their portfolios to the current market environment.”

See also: Evelyn Partners adds to US equities and UK gilts in Core MPS rebalancing

Equity funds attracted €2.5bn net inflows in January, while multi-asset funds suffered outflows of €11.7bn. Investors also pulled €3.6bn from alternatives and €1.8bn from real estate funds.

By fund group, BlackRock’s €7.3bn net inflow was the best-selling among fund promoters in Europe, ahead of HSBC’s €6.7bn.

JP Morgan (€6.5bn), Axa Investment Managers (€4.3bn), and BNP Paribas (€4.0bn) all also saw strong net inflows.

The inflows occurred against the backdrop of an unstable market environment due to the geopolitical tensions in Middle East, especially the Red Sea, which increased in January due to concerns over prolonged delivery times caused by shipping companies having to avoid the Suez channel.

Glow added: “This month was somewhat business as usual. However, it is still surprising that European investors prefer bond funds over money market products, given the inverted yield curves in the major economies around the globe.

“In addition, it is noteworthy that one of the major trends from 2023 (actively managed US equity funds faced outflows, while ETFs enjoyed inflows) continued in January 2024.”

This article was written for our sister title Portfolio Adviser

“These flows (into ETFs) indicated that European investors seem to have had a preference for equity funds when it came to passive products,” Lipper said.

However, despite the low-interest rate environment, bond funds remained the bestselling asset class of 2017 with net inflows of  €289.4bn. These were followed by mixed-asset funds (€172.8bn), equity funds, alternative Ucits products (€53.7bn), real estate funds (€7bn), and commodity funds (€4.3bn).

“These flows may indicate that the risk appetite of European investors increased, since equity funds—the asset type with the highest net outflows for 2016—were back on the menu,” the report said.

“These flows may also indicate that European investors gained a deeper understanding of the performance drivers of mixed-asset funds and alternative Ucits funds, since they were rather shy of investing in these asset types in 2016.”

Overall, 2017 set a new record of net inflows at €756.9bn into mutual funds, far above the record inflows of 2014 at €351bn, and 2016 at €312bn.

For long-term mutual funds, the best selling sector was global equities at €62.4bn, followed by global bonds (€50.9bn), global USD hedged bonds (€45.6bn), and short term EUR bonds (€40.3bn), and emerging markets global in hard currencies bonds (€35.3bn).

Fund selector intentions

However, 2018 looks set to paint a different story for these sectors according to Expert Investor research.

Latest data from Expert Investor’s research team found that European fund selectors do not intend to increase their global equity fund holdings over the next 12 months.

The data found that global equities maintained a consistent low level popularity with 20% looking to buy more and 10% hoping to sell in 2018.

The equity funds selectors are intending on increasing in 2018 are global emerging market, Asia ex Japan, European, hedge long/short, and Japanese equities. Bonds where fund selectors intend to increase their holdings are unconstrained, emerging market corporate, and emerging market government.

AUM

The Lipper report found in terms of overall numbers of funds, equity funds had the highest assets under management (AUM) at €3.9trn, followed by bond funds at €2.6trn, mixed-asset products at €1.7trn, money market funds €1.2trn, alternative Ucits funds at €0.6trn, real estate funds at €0.2trn, other products at €0.2trn, and commodity funds at €0.04trn.

More than a quarter of those surveyed had 0% of clients’ portfolios in passive.

But with a continued regulatory focus on fees, greater transparency and calling out of so-called benchmark-huggers, as well as the ongoing struggle to find returns amid the uncertain political environment, wealth managers are beginning to explore the ETF landscape.

According to Blackrock, there were strong ETF inflows throughout May on the back of the continuing equity bull run.

The US still rules the roost, with US ETFs making up more than half of total assets under management.

Elsewhere, statistics from Lipper revealed that, during the week ending 14 June, investors piled $17.7bn into US-based ETFs.

However, there has been an increased appetite for ETFs across the board, notably in Europe following the result of the French presidential election and the subsequent easing of the threat of populism.

Asset classes eating into the US’s market share include European equities with $23.9bn inflows in May, while investment grade corporate bonds and emerging market equities enjoyed windfalls of $22.9bn and $19.9bn respectively, Blackrock said.

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The inflows into TIPS (Treasury Inflation Protected Securities) ETFs were the biggest ever recorded in a calendar month, and are higher than all the inflows of the previous five months combined.

Investors are clearly anticipating an acceleration of inflation expectations in the United States. US 10-year break-even inflation is currently around 2%.

This is suspiciously low, considering consumer price inflation now stands at 2.7%. Add to that the presumed inflationary impact of the Trump presidency, and TIPS are a close to a no-brainer compared to nominal US government bonds.

TIPS also look attractive compared to European investment-grade bonds, which will struggle to even provide real returns over the next few years. The spread between US and German government bonds currently is more than 200 basis points.

Little surprise therefore that European investment-grade bond trackers were sold off in February. EUR corporate bond ETFs suffered the largest net outflows, at €1.3bn.

The rush for money market funds is not only a flight to safety, however. It also reflect a strong preference for dollars over euros at the moment: euro-denominated money market funds saw net outflows of €3.3bn in May.

And investors are right to bet on the dollar, says Tim Peeters, head of securities portfolios at the multi-family office Portolani in Belgium. In fact, a vote to leave as well as one for remain would be positive for the greenback, he believes.

“Brexit isn’t only a risk for sterling, but also for the euro. If the UK leaves the EU, the euro will destabilise because questions about the long-term viability of the EU and the euro will be raised again. This makes the dollar more interesting,” Peeters explains.

However, this doesn’t mean Brexit will imminently weaken the euro, says the Belgian: “Many hedge funds that have been taking cheap loans in euros will want to pay these back when market sentiment sours. This could drive the euro up in the short-term.”