RPT-Fitch: European Equity Funds - inflows are back; growth funds losing steam
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Sept 25 (Reuters) - (The following statement was released by the rating agency)
In its latest European equity fund sector review, Fitch Ratings says that global flows on equities are back and particularly pronounced within the Europe equity fund category, with a rapid increase since May 2013, and reaching a six-year high in August. The asset class notably benefits from a less depressed economic environment in Europe, and from a recent reallocation from US and Emerging Markets Equities. Outflows witnessed in March/April this year appear to be a brief interruption in a one-year net new money dynamic on this universe.
European growth stocks, whose related premium becomes less justified in the currently less depressed macro environment, have started to run out of steam since April. Fitch notes that the performance ranking of certain leading growth funds has declined relative to peers, which is questioning the long-standing predominance of the quality growth investment style that Fitch highlighted a year ago (see 'Stock-pickers Searching for Growth, Confirming Change In Style', dated 8 June 2012 at www.fitchratings.com).
Conversely, small and mid-cap equities continue to outperform large cap equities in 2013 so far, still benefiting from improved market liquidity and specific, idiosyncratic stories.
Following the corporates' merger and acquisition stories that have animated the market since July 2013, most fund managers expect further M&A activity and are seeking to benefit from that trend through sector allocation. While this may effectively be a factor for selection bets, the observed trend is not sufficiently pronounced at this stage to make it a truly key theme for stock-picking in funds.
The review combines a summarised overview of the sector's developments with fund peer group data. Fitch's fund peer groups include best-selling funds, best performers and largest funds as well as Fitch's rated funds, domiciled in Europe and classified as cross-border.
Fund sector research is part of Fitch's on-going commitment to fund research and ratings. Fitch's Fund Quality Ratings combine Fitch's experience in qualitative fund analysis with rankings and performance data from Lipper, a Thomson Reuters company. Fitch's Fund Quality Ratings offer an independent, forward-looking assessment of a fund's key performance and risk attributes and consistency of longer-term returns, relative to peer group or benchmarks. The ratings focus on the fund manager's investment process, key fund performance drivers, risk management, and the quality of the fund's operational infrastructure.
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