Morningstar Magazine - June/July 2017 - 29

Bond Funds Still the
Bedrock of the Fund
Business in Europe

Europe Fund Flows by Provider

Bond funds domiciled in Europe saw inflows of
EUR 25.6 billion in March, driven by high demand
for emerging-markets bond funds, as well as
for flexible and diversified products. On the other
hand, euro government-bond and euro long-term
bond funds suffered outflows. This illustrates
investors' preference for higher-yielding
fixed-income assets in times of ultralow interest
rates. Allocation funds also continued to
see hefty inflows, taking in EUR 10.9 billion, the
highest level seen since May 2015.
With inflows of EUR 4.6 billion, global U.S.-dollarhedged flexible-bond funds had the highest
inflows of any category. It was, however,
a pretty one-sided affair: EUR 3.9 billion of those
inflows went to PIMCO GIS Income.
This global flexible-bond fund has thrived on its
stellar performance and has taken in EUR 15.3
billion in the past 12 months. This amounts to 80%
of all PIMCO inflows during that period. The fund's
assets under management stood at EUR 28.5
billion as of March 31, well over a fourth of PIMCO
Europe's assets. This is reminiscent of the story of
PIMCO GIS Total Return Bond, which played a
dominant role for this fund house between 2009
and 2012 in Europe. PIMCO GIS Total Return
Bond's assets in Europe peaked at EUR 25.8 billion
in December 2012 (then close to 25% of PIMCO's
assets). The former flagship fund's assets have
since dwindled to EUR 5.6 billion.
The Morningstar Category Other Bond Funds
also saw inflows of more than EUR 4.5
billion. This category contains a mixed bunch of
funds. Products with a focus on senior loans
and preferred securities bore witness to the strong
demand for higher-yielding securities, which
are typically targeted by institutional investors and

Estimated Net
Flow (EUR Mil)

Organic
Growth Rate %

Net Assets
(EUR Bil)

1-Month

1-Year

YTD

March 2017

PIMCO

4,887

19,283

12.31

106

BlackRock

3,074

-128

2.21

275

Amundi

2,579

11,883

4.77

125

Pioneer Investments

-1,524

-206

-1.16

100

AXA

-1,056

-693

-0.32

-819

-3,417

-0.71

145

Name

Largest Inflows

GREATER EUROPE

Germany

Estimated Net
Flow (EUR Mil)

Largest Outflows

Fidelity
Source: Morningstar. Data as of 03/31/2017.

wealth management arms of banks. Global
emerging-markets bond funds investing in local
currencies had net inflows of EUR 2.6 billion,
stronger than in any single month since January
2013. The main beneficiaries were BlackRock,
GAM, and HSBC.

After suffering outflows for the better part of 2016,
inflows to BlackRock's funds have rebounded
sharply. Europe's largest open-end fund provider
has benefited from the return to favor of emergingmarkets bond funds, which have been the
backbone of BlackRock's bond fund sales this year.

Last month's laggards were headed up by
euro-denominated diversified-bond funds. This
runs counter to the otherwise high demand
seen for diversified and flexible-bond products.
Coming from a high of EUR 5.3 billion in March
2015, category assets are now down to EUR
2.6 billion. Since euro diversified-bond funds tend
to invest substantially in euro government
bonds, which have suffered under increased
market volatility since the fourth quarter of 2016,
the outflows should not come as a surprise. (Euro
government-bond funds were among the March
laggards as well.) USD high-yield bond funds
also witnessed high redemptions, which came in
the wake of muted market performance as
declining oil prices took their toll on this category.

Amundi continued to thrive on the distribution of
fixed-income and allocation funds, with First Eagle
Amundi Income Builder and First Eagle Amundi
International the most important sources of the
firm's EUR 5.6 billion of net inflows so far this year.

Overall, PIMCO saw inflows of EUR 4.9 billion in
March, raising its total for the past 12 months
to EUR 19.3 billion-second to none in Europe.
This is a far cry from the dire state of affairs in 2014
and 2015, when PIMCO suffered tremendous
outflows after the sudden exit of company founder
Bill Gross. Between May 2013 and December
2014, PIMCO's long-term fund assets in Europe
crashed from EUR 117 billion to EUR 78 billion.
They have since rebounded impressively to EUR
107 billion.

Pioneer suffered outflows of EUR 1.5 billion in
March. Bond funds previously managed by Tanguy
Le Saout, the former head of European fixedincome who left the company in December, were
among those with the highest outflows for the
year to date. Nearly EUR 430 million was pulled
out of flagship Euro Aggregate Bond in March.
AXA saw large flows out of U.S.-dollar high-yield
bond funds, in line with the outflows suffered by
this category in general. Fidelity suffered outflows
in excess of EUR 800 million in March. While
its allocation funds have seen high growth rates
this year, this did not compensate for outflows
from its equity and fixed-income fund ranges.
Ali Masarwah is editorial director, Europe, Middle East, and
Africa, with Morningstar.

global.morningstar.com/Morningstarmagazine

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Table of Contents for the Digital Edition of Morningstar Magazine - June/July 2017