Banking Jitters Rekindle Demand for Money Market Funds on Both Sides of the Atlantic
April 27, 2023 — London
However, the European resurgence predates the collapse of Silicon Valley Bank
There has been a resurgence in demand for money market funds in both the U.S. and Europe, albeit with different factors at play in the two regions, according to the latest Cerulli Edge—U.S. European Monthly Product Trends.
Whereas nervousness about the stability of the banking system motivated U.S. investors to withdraw deposits from small and mid-sized banks and park it in the relatively safe asset class of money markets, the European resurgence predates the collapse of Silicon Valley Bank and Signature Bank. In 2022, the appeal of these funds among European investors was led by European Central Bank rate rises, starting with the one announced in July 2022.
Although demand for money market funds did wane in early 2023 as European investors once again embraced equity and bond funds, renewed concerns about the resilience of the banking sector, following the announcement of the deal between UBS and Credit Suisse, contributed to money market funds attracting net inflows of €39.3 billion (US$34.7 billion) in March. The total assets under management of money market funds domiciled in Europe stood at €1.5 trillion at the end of the month, up 9.6% year on year.1 In the U.S., investors moved more than US$367 billion into U.S.-domiciled money market funds in March.2
“The €39.3 billion of inflows to money market funds are significant, but it seems there has been less of an exodus from European bank deposits to fuel money market fund inflows compared to the U.S. This may be in part due to investors’ greater faith in European banking institutions and because European banks have been quicker to pass on interest rate rises to customers,” says Fabrizio Zumbo, director, European asset and wealth management research.
There is clearly demand on both sides of the Atlantic for short-term, lower-risk debt. The unknown, says Zumbo, is whether European asset allocators will continue to fulfil this demand through greater use of money market funds or turn to options in the fixed-income space.
Nevertheless, 46% of asset managers in Europe recently surveyed by Cerulli name money market funds as a top-three sales priority for the next one to two years. In addition, 10% rank the asset class as their top sales focus. This compares to 29% of asset managers that cite equity funds as their chief focus for promotion going forward, 27% that cite fixed-income funds, and 19% that cite multi-asset funds.
Spanish banks expect to see the most demand for money market funds in the active fund space over the next 12 to 24 months. Almost two-fifths (38%) expect the asset class to see the highest demand; two-thirds (67%) included it in their top three. Italian private banks also expect money market funds to be in demand, albeit to a lesser degree as compared to their Spanish counterparts: one-quarter (24%) rank money market funds top for expected demand and more than half (52%) include the asset class in their top three.
1 Source: Morningstar
2 Source: EPFR
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