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Cerulli finds European institutional and retail investors approach risk differently

Tuesday, October 02, 2012
Opalesque Industry Update: Investors who like to trade volatility have been putting money into volatility exchange-traded funds (ETFs) like never before, according to the September issue of The Cerulli Edge-European Monthly Product Trends. Assets under management (AUM) topped €810 million ($1 billion) as of August 2012, up from €308 million ($396 million)in 2011 and €47.4 million ($60 million) in 2010." The ability to hedge the volatility risk associated with an investment portfolio is particularly appealing to institutional investors during times of market uncertainty, but these sophisticated products have limited appeal to retail investors, who continue to vacillate between fixed income and equity products as part of their risk-on/risk-off approach," said Barbara Wall, a director at Cerulli Associates in London.

Predictable sector winners in July were bond funds, which attracted €21 billion in net inflows-the highest level in more than 10 years. Flows were given a significant boost from the money market sell-off (€35 billion was redeemed from the sector in June and July).

Asset allocation funds were also in positive territory to the tune of €1.5 billion. "Increasingly, investors see asset allocation as providing a much-needed exit route from equity markets should the eurozone crisis escalate," explained Yoon Ng, a Cerulli associate director.

Emerging market equities were the top equity sector by net new flows, attracting €639.2 million, although only a handful of funds benefitted. Appetite for equity exposure did not extend to global equity funds, which registered a second consecutive month of outflows.

"While risk aversion is understandable, investors are missing opportunities," Wall added. U.K. smaller companies and European smaller companies were the top performing IMA sectors YTD July, with returns of 13% and 11% respectively. Is it time to take a deep breath and rethink investment strategies?

ETFs continue to enjoy healthy flows and are steadily expanding their retail presence in Europe. ETFs are increasingly popular with advisors, who have started to look at them as the key building blocks of a portfolio.

The Swiss market was one of the few that posted positive net sales in July (CHF1.6 billion, €1.3 billion). The money market sell-off in the rest of Europe did not affect Switzerland-money market funds with exposure to the U.S. dollar and Swiss franc attracted CHF600 million combined.

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