Bond inflows double equities so far in 2017
European asset managers have had bond inflows double that of equities so far in 2017. Bonds have now retraced most of their outflows since the US elections in early-Nov, according to EPFR. This is despite expectations for rising yields and positive equity markets. We think this reflects both client risk aversion from uncertain macro (Brexit, Europe elections, Trump) and structural trends. Higher bond yields are attractive for institutions seeking income and liability matching, while regulation is also supportive (Solvency II). Within bonds, high yield, investment grade and EM debt are preferred to
government and other low-risk bonds. Unless interest rates rise sharply in Europe and/or the macro outlook becomes clearer for equities, we think demand for fixed income will remain resilient. This reinforces our preference for Continental EU asset managers given their relative fixed income exposure and the mix pressure on UK managers’ fee margins.