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How Much Did Investors Take Out of Europe Last Year?

European investors fled a range of long-term investment funds in December 2011, capping a bad year for the fund management industry as a whole, research published on Thursday revealed.

Mutual Funds
Jay Brousseau | Stone | Getty Images
Mutual Funds

Investment researchers Morningstar said long-term European investment funds lost 23 billion euros ($30.3 billion) in December alone and 119 billion euros during the year as investors became spooked by the euro zone debt crisis.

Unlike in 2008, investors didn’t simply shift assets from the stock and bond markets into currencies but instead exited the markets altogether.

The research suggested equities suffered the worst as fears over the global economy and continuing volatility in equity markets led to outflows of nearly 11 billion euros in December and 70 billion for the whole of 2011. December also marked the seventh straight month of outflows from stocks.

Worse still, it appears that European investors once out of the markets stayed out. Where last year US investors fled stocks for the perceived safety of the bond market, the euro zone debt crisis ensured fixed income funds were viewed with a great deal of distrust by European investors who withdrew 7 billion euros in December and 44 billion euros over the course of the year, the vast majority of it from euro bond categories.

Investors also seemed uninspired by alternative investment funds in December removing more than 3 billion euros from funds in Morningstar’s 22 alternative fund categories in December.

French investment banks seemed to suffer particularly badly from the outflows of investment capital, said the research. BNP Paribas and Amundi both saw significant declines in organic investment in 2011.

BNP Paribas’s 930 million euros long-term outflow in December capped off a year of more than 22 billion euros leaving its funds, with 11 billion euros of that amount coming out of its money market funds.

Why the French Fled

Amundi saw outflows of 4 billion eruos in December taking its losses for the year to a similar level, and with a similar proportion lost from its money market offerings as BNP.

French investors had several reasons to abandon money market funds, said Morningstar. French banks boosted interest rates on deposits in an effort to shore up their balance sheets while new European regulation has also forced money market funds to become more conservative, improving their safety but denting their yield potential.

That said, Europe’s largest and third largest fund companies, JP Morgan and BlackRock, retained their positions in 2011 mostly due to their US dollar and British pound money market businesses, according to research.

Meanwhile, Franklin Templeton appeared the big winner among Europe’s largest investment houses with organic growth of more than 14 percent. But momentum slowed going into 2012, as the two funds which contributed most to Franklin’s European growth—Templeton Global Bond and Templeton Global Total Return—faltered in December and for the fourth quarter as a whole.

European investors took nearly 1 billion euros and 500 million euros from each fund respectively during the last three months of 2011, though the two funds still managed to end the year with more than 11 billion euros in new European money.

Syl Flood, product manager for asset flows at Morningstar, said the research revealed the extent of the damage caused by the continuing uncertainty over the global economy and euro zone debt crisis with even guaranteed funds, supposedly designed to outperform in any market, not attracting investor interest.

“The wash of money out of funds in the face of a difficult year for asset markets is understandable but also of concern as Morningstar research into investor returns shows that investors often cost themselves by selling near the bottom or buying after an asset class has risen,” Flood added.

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