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Fixed income remains an active game, flows show

AUM risingAssets under management (AUM) in European funds increased by nearly a trillion euros last year mainly thanks to record flows.

Morningstar said the AUM in European-domiciled open-ended funds at the end of the year was €8.9 trillion, up from €7.96 trillion in 2016.

Net inflows of €682.8 billion were recorded, with fixed income products raking in a record €288 billion.

In the fixed income sector bond funds remained dominated by active management in 2017. The market share of passive fixed income funds rose only slightly from 11.8% to 12% year on year, while there remained “huge demand” for active products.

Morningstar cited Pimco’s European fund range as an example. Pimco GIS Income saw an  “explosion” of the fund’s AUM with the largest flows across Europe of €41.5 billion, a growth rate of more than 200%.

Inflows to “allocation” funds amounted to €134.6 billion, close to the record levels of €136 billion seen in 2014, while inflows for open-ended equity funds were a net €106.9 billion, reversing the net outflows of €57.5 billion seen in 2016, Morningstar said.

Long-term passive funds enjoyed higher growth rates than actively managed funds again, but actively managed funds took higher inflows in absolute terms.

The market share of passive funds grew from 15.2% in 2016 to 16% at year-end 2017.

Ali Masarwah, regional editorial research director at Morningstar, said: “It was a record year for bond funds with €288 billion flowing into fixed income products, largely driven by investors targeting higher-yield assets through flexible bond funds.

“However, it remains to be seen if this trend will continue following a bond market sell off in the first month of 2018, and further structural changes to come through the tapering of the European Central Bank’s bond-buying program.”

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