Big-name Europe equity funds hit hard in August rout

LONDON Tue Aug 16, 2011 8:54am EDT

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LONDON (Reuters) - The 10 largest European equity funds shed an aggregated 7 percent of their assets in the first two weeks of August as panic about the future of the euro zone rocked markets, leaving many scrambling to persuade clients not to redeem their stakes.

The 10 biggest European equity funds, running an indicative 23.1 billion euros ($33.3billion) in assets at end-July, had lost a total of 1.6 billion euros by August 12, Lipper data showed, reflecting a loss of confidence in the health of the region's banks and the ability of policymakers to heal them.

Managers presiding over asset falls are now trying to avert the threat of client withdrawals, as tumbling share prices slash the value of the assets they run.

"I am just like every other long-only fund manager. No money is going into Europe," said John Arnold, who manages the AGF European Equity Class Fund, which was down about 10 percent in the week to August 5 after hits on key holdings like Societe Generale and BNP Paribas.

The fund posted a 1.59 percent gain in the week to Aug 12.

"You are dealing in a void where most fund managers, apart from their dividend income, are facing redemption. The long-only managers are in a sense trending out not by intention but because simply that is what the clients are doing," he said.

Fidelity's European Growth fund, the largest of the 10 with 7.38 billion euros in assets, shed 10.8 percent of its assets in the first week of August, before rebounding 4.96 percent in the following week.

The fund closed the fortnight with 433.4 million euros in losses.

Having shed between 5.41 and 11.6 percent of their assets in the first week of August, all but two of the 10 funds managed to recoup some of the losses in the second week of the month, according to Lipper data.

Several European countries Friday imposed a ban on short-selling of financial stocks in an effort to reduce speculation and calm markets.

Contrary to popular opinion, prime brokers and traders say it has been fund managers selling their holdings rather than short-selling by hedge funds that has led to heavy falls in banking stocks seen in recent weeks.

Equity funds were bleeding assets even before August's market rout, however.

According to Lipper data, released separately last Friday, long-term fund sales in Europe excluding money market flows fell 40 percent in the first half of 2011 versus a year earlier.

In June, investors redeemed more than 25 billion euros from the European funds industry, mostly from money market funds, the data showed.

One of the reasons banks were so heavily sold last week is that investors are still unsure they have the full picture of their financial position, said Geoffroy Goenen, co-head of the European Equity team at Dexia Asset Management.

"Two to three years ago, it was more an issue of liquidity, it was a question of toxic assets gaps and balance sheets; today it more a question of confidence," he said.

Goenen has steered his fund, the Dexia Equities B European Finance, underweight in banks. The fund last week saw the value of its total assets fall 1.11 percent.

"A lot of retail clients were asking what to do and my answer on that was 'I won't be in the sector' ... I can go in financials that are not banks," he said.

Societe Generale, whose share price dropped by as much as 15 percent Wednesday, however, has proved an exception.

"Sometimes you have to think of risk/reward, and we definitely think that at 20 euro there is value in the bank," he said.

Manu Vandenbulck, senior portfolio manager at ING's Europe High Dividend fund, echoed Goenen's feelings.

The fund, with about 600 million euros under management, outperformed its peers returning 2.78 percent in the second week of August and returning -7.23 percent the previous week, according to Lipper.

"We are underweight now in financials, but we have been active on selected opportunities," he told Reuters in an e-mail. ($1 = 0.692 eros)

(Editing by Sinead Cruise and Hans-Juergen Peters)

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