* After a brief lull in Q4 2017, equity fund flows in Europe have bounced back strongly in 2018
* Funds have trimmed their positioning in Italy; UK emerges as the top beneficiary
* International funds have significantly increased their holdings in the energy sector
Year-to-date in 2018, European equity funds have registered the strongest inflows across all major regions
In 2017, Europe recorded the highest equity inflows across all major regions, accounting for over one-third of the global equity fund inflows. In Q4 2017 however, we observed signs of moderation in European fund inflows (see ‘2017 review, 5 January 2018’). In the first few weeks of 2018, the trend seems to have changed again. Year-to-date in 2018, European funds have registered strong inflows of cUSD22bn, which are also the highest across all major regions. The extent of robust inflows into Europe can be judged from the fact that weekly fund inflows over the last three weeks are
among the top ten weekly inflows (in USD terms) since the beginning of the fund flow data series.
In Europe, funds are moving out from Italy into the UK
As per the most recent opinion polls, no party in Italy could emerge as a clear winner in the Italian general election due to be held on 4 March 2018. Growing political uncertainty in Italy seems to have impacted global funds’ positioning in the region. In the last three months, global funds have reduced their weightings in Italy by over one standard deviation compared to its long-term average value. This fall in Italy holdings over the last three months is greater than the total fall in country weightings in the whole of 2017. In contrast, UK weightings have risen sharply. In December 2017,
global funds significantly increased their holdings in the UK by 52bps. This resulted in the 5-year z-score of global funds holdings in the UK turning positive for the first time since the Brexit outcome and rise to its highest level in 1.5 years.
Funds are raising their positioning in the Energy sector
Following a sharp increase in the oil price since mid-2017, international funds, in general, have increased their holdings in the energy sector. Across all key regions, Europe leads with the highest increase in its weighting in the energy sector. Since July 2017, European funds’ positioning in energy has risen by 141bps and the sector has also outperformed the MSCI Europe index by 14% over this period. Despite this steep increase in holdings, funds positioning in European energy remains below its mid-2016 peak, suggesting scope for it to rise further.