Looking at the money moving into, and out of, absolute return mutual funds across Europe over the past seven years reveals that inflows peaked in 2006, reaching €61.3 billion, but 30% of this activity related to enhanced money market funds. These products became the bête noire of the continental European industry and bore massive redemptions through the 2007-2008 crisis, with investors being left with a bitter taste in their mouths as to exactly what investments these money market funds were “enhancing”.
By way of contrast, the mixed assets funds that have no asset allocation restrictions were not only popular in 2006 (net sales of €19.7bn), but have rebuilt their sales at the same time as the wider funds industry has recovered.
Meanwhile flexible bond products (with no restrictions on currency exposure, geographic focus or credit rating) made both the early running (net sales of €8bn in 2004) and an early post-crisis recovery (sales of €7.5bn in 2009) in the absolute return universe.
More generally this historical data puts the recent activity into context, showing that 2010’s sales flows (€24.3bn) exceed the total posted in the boom year of 2005 (€19.7bn excluding enhanced money market funds), but are still way short of the 2006 total. Interestingly, while absolute return made up 10% of all European mutual fund sales last year and also in 2004 and 2005, this proportion rose to a whopping 30% in 2006. With this perspective, the post-crisis marketing activity surrounding absolute return funds does seem to be outpacing inflows, with the largest portion of mutual fund investors’ money instead moving to emerging market debt and emerging equity funds.
But this is not to dismiss the absolute return phenomenon, not least in an environment that remains challenging for so many types of funds.
And it should also not be dismissed when the degree of product development activity is seen. With December activity still being assessed, it seems likely that new absolute return launches in 2010 will exceed those of previous years, including the 175-fund high point achieved in 2007. 2007 was also significant in giving the industry the Eligible Assets Directive, legally binding guidance on which financial instruments could be included in UCITS.
A final insight is provided by looking at where last year’s newly launched funds are being sold, with nearly 50%, or 81 funds, generating significant sales from more than one market. So cross-border groups selling into markets across Europe, who have been in the vanguard of the funds industry’s revival, are driving absolute return activity too. Such impetus suggests sales will grow again this year, but surely attracting the proportion of flows seen in 2006 will be too much to ask?
