European Stock Pickers Bleed Cash as Their Value Nags Investors

(Bloomberg) --

In money management's version of the struggle of human versus machine, the machines have won another round.

Europe's biggest stock-picking firms suffered outflows in the first six months of 2019 even as benchmark indexes rallied, with the Standard & Poor's 500 Index recording its best first half since 1997. Investors continued to channel cash into passive funds and quantitative strategies.

Amundi SA, Europe's largest asset manager, recorded its third straight quarter of withdrawals. Janus Henderson Group Plc had its worst quarterly outflows since it was formed in a 2017 merger. The cash drain at two-century-old money manager Schroders Plc also extended into this year. Even Man Group Plc, which manages hedge funds and long-only strategies, got dented, with clients pulling $1.1 billion in the first half.

“The worrying thing for active asset managers is that in a period when many markets have experienced net fund outflows, passive investment strategies have continued to attract new money,” said Charles Graham, a senior analyst for Bloomberg Intelligence.

European open-ended funds saw inflows of just 41 billion euros ($45 billion) in the first six months of the year, according to data compiled by Broadridge Financial Solutions Inc. While it represents a small turnaround from the second half of the year when 129 billion euros was yanked, it's a far cry from the inflows seen in previous years, the data show.

“The European market saw 800 billion euros in inflows in 2017, in the last 12 months it has seen zero,” Amundi CEO Yves Perrier said on a call with journalists earlier this week. That's due to risk-averse investors bruised by last year's volatility, he said.

As actively managed funds struggle to attract cash, passive products lured investors. Though Amundi posted net outflows, it saw almost 7 billion euros added to its ETF, index and smart beta ranges. Deutsche Bank's DWS Group had net inflows of 7 billion euros driven by its passive products. Without those, there were outflows.

It's all part of a worrying trend for the industry as actively managed funds failed to offer market-beating returns. In the past decade, fewer than a quarter of actively managed funds that it studied in Europe outperformed, according to research by Morningstar Inc. that looked at performance of about 10,200 active and passive European domiciled funds, accounting for about 2.8 trillion euros in assets.

The result: shrinking fees, job cuts and industry consolidation.

“I don't see any trends changing anytime soon,” Laith Khalaf, a senior analyst at Hargreaves Lansdown, said in an interview. “The rise of passive has put pressure on active managers and scrutiny on the value they're adding. There will be more consolation for middle size managers where teaming up can help cut costs and relieve the regulatory burden.”

--With assistance from Melissa Pozsgay.

To contact the reporters on this story: Lucca de Paoli in London at gdepaoli1@bloomberg.net;Suzy Waite in London at swaite8@bloomberg.net

To contact the editors responsible for this story: Shelley Robinson at ssmith118@bloomberg.net, James Hertling

©2019 Bloomberg L.P.