European Flow Monitor: European flows in flux; bifurcation in global equity demand
* Flows: Something old, something new European fund flows were in flux this week, with a mix of new developments (e.g. a spike in equity flows) and continuing trends (e.g. lacklustre fixed income flows). This fits with our expectation that as the immediate impact of European QE fades, demand for mutual funds will be more volatile, and more nuanced, in 2Q15.
* Global equity funds see flow bifurcation
Demand for global equity products has diverged markedly depending on the strategy’s exposure to US markets. EPFR data suggests that flows into global ex-US equity funds have outstripped flows into global incl. US funds by 5x over the last 12 months. This dynamic has run counter to performance trends, with global incl. US funds returning c.13% over the period, compared with a c.3.6% return from global ex-US funds.
* Govt. bond redemptions drive F.I. outflows
European investors continued to redeem longdated govt. bond funds this week, which led to the third consecutive week of fixed income outflows from European investors.
* GAM: Restructuring to aid growth, Buy
In our recent report, 5 trends to watch in 2Q15: GAM to Buy, Buy Azimut (CL), Sell BME (May 19, 2015), we argued that stock-specific issues in the sector are likely to gain more attention given the uncertain flow environment. We upgraded GAM Holding to Buy (from Neutral) on the basis that management’s restructuring programme has the potential to drive earnings growth regardless of flow vicissitudes. We incorporate SFr25 mn of efficiency savings in our forecasts, which imply 2016E EPS that is 7% above I/B/E/S consensus.