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Investor behavior in Europe is mirroring the market’s worst crises, new research shows

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BGC is a London-based global brokerage firm. Its traders react to the opening of the European stock market on June 24, 2016. This was after Britain voted in favor of leaving the European Union.

Russell Boyce | Reuters

LONDON — European fund flow patterns so far this year are emulating historical crisis periods for markets, including the 2008 global financial cash, according to new research from data firm Refinitiv.

According to research, the net flows to Europe’s funds industry were -$63.2 trillion (-57.2 billion) due to an inefficient market and lingering fears around the Covid-19 Pandemic.

Mutual funds — pools from investors allocated by fund managers into stocks, bonds, money market instruments and other securities — faced 67.6 billion euros of outflows in February alone. Meanwhile exchange-traded funds (ETFs) — baskets of securities that trade on regular stock exchanges — enjoyed inflows of 9.2 billion euros.

DetlefGlow, director of Lipper EMEA at Refinitiv stated that in this market and considering the economic uncertainties, one would expect European investors selling long-term investments and buying money market products.

It is therefore somewhat unexpected that European investors have sold money market products which are usually considered safe-haven investments.

The overall flow figures were heavily impacted by 49.4 billion of outflows from money market products — short-term debt investments — which meant that long-term funds actually only faced around 9 billion euros of outflows even in such a turbulent market environment. Money market funds are cash-like investments that have low risk but offer high liquidity and investors high liquidity.

“Nevertheless, it looks like European investors are taking rising interest rates — caused by the increased inflation rates around the globe — into consideration as they further sold bond products over the course of February,” Glow added.

Inflows to ETFs totalled 34.7 billion euro, while mutual funds saw 91.9 billion Euros in outflows over the first half of this year.

Glow pointed out that ETF inflows in this market environment mirror a trend seen during past rough markets, like the 2008 financial crisis or 2011 euro sovereign debt crisis. ETFs experienced large outflows in both cases.

Refinitiv’s analysis for the February Lipper Global Classifications best-selling and worst-selling in February revealed that European investors remain “risk-on”, despite challenging markets.

Glow explained that European investors had taken positions in certain sectors which could offer diversification to their portfolios, such as flexible mixed-asset products or global equities.

It is clear that European investors are selling their safe-haven assets and investing in funds that offer diversification or focus on specific themes, countries, or sectors.

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