European bond funds witnessed their worst year since the financial crisis of 2008, according to the European Fund and Asset Management Association (Efama).
Bond funds reported net outflows of €137 billion in 2022, which correlated to 4% of the asset classes’ net asset values.
Higher interest rates caused capital losses for bondholders, and investors were deterred by the expectation that interest rates would continue to rise throughout the year.
Last year was also challenging for funds in general – those regulated by the Ucits Directive and those in the alternatives category. They reported both net outflows and negative net sales throughout the year.
Together they saw net outflows of €278 billion in 2022, whereas the funds reported net inflows of €888 billion the year prior. Ucits saw net outflows of €175 billion, which was the first time the funds reported net outflows since 2011.
Net sales of alternative investment funds (AIFs) also turned negative for the first time, reporting net sales of negative €101 billion in 2022. AIFs experienced difficulties as new IFR/IFD prudential rules caused many pension funds from the Netherlands to stop managing their assets with AIF wrappers.
Despite a challenging year, ETFs remained attractive to investors, reporting positive net flows of €85 billion. Similarly, demand for SFDR Article 9 funds also remained robust, which caused these funds to record net inflows of €26 billion.
Bernard Delbecque, senior director for economics and research at Efama, said: “This outcome confirms that investor demand momentum (particularly institutional investors) remains with ETFs thanks to their low costs and trading flexibility, and with sustainable funds due to the expected long-term benefits of a sustainable investment approach in terms of lower downside risk and ESG impact.”
But rising risk appetites and robust economic growth are encouraging flows back towards European asset managers, according to research by Bank of America Global Research.
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