Enthusiasm for European Equity Funds Is Expected to Persist
January 5, 2022 — London
But Omicron and rising inflation may be telling factors for investors
The resurgence in demand for European equity funds is expected to persist in the near term, according to the latest issue of The Cerulli Edge―European Monthly Product Trends.
Many investors believe there is still value in European equities relative to other regions, however concerns about the new Omicron variant of the coronavirus, potential countermeasures against rising inflation, and other macroeconomic and geopolitical issues have put investors back on alert.
“Investors will continue to play any disparity between geographic regions as a value opportunity until such factors normalize with time,” says Fabrizio Zumbo, associate director of European asset and wealth management research at Cerulli.
Equity funds aimed at the region—across the large-, mid-, and small-cap spectrum—saw their assets under management rise by 21.9% in the first 10 months of 2021, Morningstar data shows. This comes after a modest 11.8% increase over the previous two years.
European equity funds, however, still lag global-oriented products, notes Zumbo, adding that portfolios are increasingly built around a core beta global equity exposure, with other products—including a mixture of traditional asset classes; environmental, social, and governance (ESG) themes; and real assets—layered on top to generate superior returns or hedge risk.
Cerulli’s analysis of the exchange-traded fund (ETF) market indicates modest demand for European equity in the coming years. ETF issuers expect global equity ETFs to be the geographic strategy most in demand over the next 12 to 24 months across every major market in Europe, according to Cerulli research. For example, 34.3% of managers see global equities as the segment that will be most appealing to local investors in Germany.
Cerulli finds that European equity strategies will be the key focus of sales efforts across Europe. Managers (19%) are prioritizing strategies in Spain within the local active mutual fund market.
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