Investors rekindle interest in equities
The love affair between retail investors and equities is back on, if encouraging signs of accelerated demand are to be believed. Europe’s distributors and wealth managers are slowly but surely boosting allocations to equities. “Over the last few months there have been encouraging signs that retail investors may be rediscovering an appetite for equities,” says Robert Buckland, European strategist at Citigroup Smith Barney. His research shows demand for equity products is now on a par with early 1999. Europe’s retail investors bought E4.6bn of equity funds in April and E3.2bn in May, while buying accelerated in June, with E7.3bn of new money pumped in. France, Germany and Spain have enjoyed the strongest flows. Fidelity Investments confirms a pick-up of business in May and June. Positive flows These numbers are still far short of the heady days of early 2000, when European investors were buying E20bn worth of equity funds every month. Mr Buckland does not expect European retail investors to rush back with the same misplaced enthusiasm they had at the end of the bull market. But he believes positive flows will continue, as investors reappraise the risk and return of different asset classes following recent capital losses on US Treasuries. In preparation for an equity upturn, large banks such as Deutsche, UBS and HSBC are keen to train sales staff about the products of external providers. Morgan Stanley Investment Management, for one, has introduced US-constructed, tailored programmes for larger clients. Crucial upturn For these groups, an equity upturn is crucial. Bond funds bring in smaller revenues and are not necessarily favoured in open architecture-style distribution. It is almost an insult for an external fund manager to go into a bank in Spain or France and offer to manage their fixed income portfolio. “To differentiate yourself from in-house managers is easier with equity funds. And there is more appetite for third party equity funds than bonds,” says Fidelity’s European president Thomas Balk. But there is a view in Europe that open architecture has peaked. This view has even split the management of some companies. Should they be exploiting internal distribution channels in the realisation that competitor banks will never sell more than a small percentage of externally managed products? The opposing position is that products need to be manufactured for multiple distribution channels. And if banks don’t play ball, there are other more willing partners waiting in the wings. More insurance companies appear to be poised to outsource asset management to external fund houses.
