Assets in Italian funds fall sharply
The assets of the largest funds tracking the Italian markets have fallen sharply since the beginning of the year as the country prepares for a referendum on its constitution and its banking sector flirts with collapse.
Investors have fled funds as a stand-off over contentious bank “bail-in” rules — disliked by Italy’s centre-right government — intensifies ahead of the publication of stress-test results on Friday.
The iShares MSCI Italy Capped exchange traded fund, run by BlackRock, the world’s largest asset manager, has lost half its assets since January, falling to $543.2m. The iShares Currency Hedged MSCI Italy ETF has also shrunk to half its size and now has $19.2m worth of assets under management.
Two exchange traded funds that focus on Italian stocks run by Deutsche Asset Management are also down since the start of the year — by 18 per cent to $1.79m and 12 per cent to $1.87m respectively.
Arne Noack, director of passive product development at Deutsche Asset Management, said that the funds had not received much interest since their launch in August last year, partly because investors are choosing more diversified investments in an environment of uncertainty. “We are certainly optimistic that demand will come,” he said.
Investor concern about the future of the eurozone has heightened significantly since the UK’s vote to leave the EU. Many cite Italy as the biggest threat to the shared-currency area.
A third of fund managers predict that another EU country will break away from the union in the next three years, according to a survey by Bank of America Merrill Lynch. It also found that 42 per cent of managers have an underweight exposure to Italy compared with benchmarks, in contrast to just over 20 per cent a month ago.
Nicholette MacDonald-Brown, fund manager for a pan-European equity fund at Schroders, Europe’s second-largest listed fund company, said that she only holds three Italian stocks in a portfolio of 50 because very few outside the energy and financial sectors are liquid enough.
“We think the probability of a bail-in is materially lower than that bail-in is not happening,” she said, referring to EU rules that small Italian investors should be held accountable before a bailout from taxpayers.
“But the Italian market is by far the worst-performing country in Europe and the banking sector is the worst-performing sector,” she added.
Data from EPFR, the research house, shows that funds with a mandate to invest in Italian equities have experienced $4.1bn of outflows since the beginning of the year.
The chairman of Assogestioni, the Italian fund association, said that investors were waiting for a “whatever it takes” moment on banks. “The view is clearly gloomy,” said chairman Tommaso Corcos. “But it is not a specific Italian problem, it is a global issue. Banks around the wold are priced, on average, well below book value.”
But Michel Leblanc, manager of the eurozone small and mid-cap fund at Lombard Odier, the Swiss fund house, said his fund is 11 per cent invested in Italy, compared with a benchmark of 8 per cent. He said he avoids banks almost entirely and chooses companies that make most of their revenues abroad.