Quarter 1 - 2016
As a one-off, we asked a carefully selected subset of top fund selectors (40 people from 13 countries) to give their forwardlooking investment intentions on different types of sector funds.
The bars on the right show the percentage of respondents who expect to buy, hold, sell or not use the various strategies; the number in the column on the right is AUM in all funds of that theme domiciled in Europe ex UK.
We’ve listed it in order of how much money is in each strategy in Europe, with Healthcare the biggest (€19.4bn in AUM).
Aside from private equity, a high level (65-80%) of respondents use these funds.
Perhaps surprisingly, the highest numbers of buyers are in energy and financial services funds.
Biotechnology is in a churn with roughly one in five looking to either buy or sell.
Overall, all the largest-themed fund sectors, except for private equity, are enjoying a healthy level of demand.
The AUM numbers are from Morningstar – they are an aggregation of the assets of every sector fund domiciled in Europe.
Sector funds: buying/selling intentions:
It seems that fund selectors have radically changed their assumptions about asset class behaviour over the past year.
In the year up to mid-2015, the attitudes of fund selectors to GEM and US equities were highly correlated.
European equities and developed market high yield were similarly correlated to each other.
And the two pairs of correlated asset classes mentioned above were inversely correlated to each other until half-way through last year.
In other words, when fund selectors turned against US/GEM equities, they would become more positive towards Europe equities/high yield and vice versa.
That medium-term relationship started changing sharply around a year ago. Now sentiment towards GEM equities is strongly correlated with high yield and inversely correlated with US and Europe equities – a complete turnaround.
It’s clear from this that habits of portfolio construction and assumptions about the behaviour of these asset classes have changed across Europe.
Do you recognise these changes in your attitudes to these asset classes? If you either disagree or agree with these patterns, please email us with your thoughts. Send your messages to firstname.lastname@example.org
As Brexit negotiations draw to a close we looked into how UK and European fund selectors are planning on preparing for the upcoming year, how Brexit will affect their allocations and who they feel will lose out more after March 2019.
The great majority of wholesale fund selectors believe that ESG screening enhances investment performance.
Global emerging market (GEM) equities have been one of the most popular asset classes among pan-European fund selectors since Q3 2015 – but demand dropped dramatically during Q2 2018.
The fact that Europe is at an earlier stage in its credit cycle than the US is likely to drive issuance. While the US Federal Reserve has already embarked on rate hikes and begun unwinding monetary stimulus, the ECB is unlikely to begin hiking until it winds down its bond purchase programme, which is not expected to occur until later this year, and possibly not until next year. When rate hikes appear on the horizon, companies in Europe and elsewhere are likely to step up issuance in euro debt before it becomes more expensive to do so.
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