NEWSLETTER: Reasons to be cheerful, Part One

After a year of unprecedented turmoil and withdrawals, net sales figures for December 2008 provided some surprises of a positive kind, according to latest analysis from Lipper FMI, released last week. Fiona Rintoul comments... “A month that would normally deliver sales numbers steeped in red looked surprisingly buoyant this year,” says the research firm. “December produced €6bn of net new money for the month defying our more gloomy predictions of a bed & breakfast withdrawal.”

This surprising excursion into positive territory was enough to push net redemptions for the year down to just under €300bn. Before the latest figures came in Lipper FMI had been predicting that total net redemptions for 2008 would go as high as €400bn. In the event, annual net inflows of €96bn to money market funds softened the global total – net outflows from other categories did in fact reach the €400bn mark.

The positive December inflows were attributable to a number of factors. One was investment of some €5bn in cross-border liquidity funds. Others included an annual placement of €2.5bn by Swedish pension funds and €2bn worth of investment in equity funds by German investors keen to avoid imminent changes to national Abgeltungsteuer (withholding tax).

Strange behaviour in France also played a role. Normally, French money market funds see net redemptions of around €15bn in December, but this year net inflows were mildly positive at €40m.

“Word on the street suggests French investors have become so risk-averse that they have pumped everything they have into their favoured money market funds to the extent that the normal redemption cycle was more than fully offset by new monies,” explains Lipper FMI.

Net flows for French equity funds were also mildly positive in December at €474m, despite a shocking performance from the headline CAC index. This chimed with behaviour elsewhere in Europe. Overall, equity funds attracted positive net flows of €10bn split roughly equally between ETFs and actively managed funds, despite depressed markets.

It’s too early to call it a rally – especially with net outflows for the year from equity funds totalling an uncomfortable €119bn – or to talk about the end of the turmoil. The continuing barrage of bad news from the banking sector, in any case, makes any such talk impossible. (My Main Street muse suggests that the first public lynchings of bankers can’t now be far off.) But could these tiny green shoots perhaps be seen as the end of the beginning? ©2009 Funds Europe

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