Morningstar Direct SM Asset Flows Commentary: Europe

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1 March Data thru 28 Morningstar Direct SM Asset Flows Commentary: Europe European Investors Surge into Long-Term Funds Continues in ruary By Ali Masarwah, European Fund Flows Team European investors put a net EUR billion into long-term open-end mutual funds in ruary. This is down from the record-breaking inflows of EUR 47.1 billion seen in January, but nevertheless a solid inflow. By the end of ruary, EUR 4.44 trillion were invested in European long-term funds, the highest level recorded since Morningstar started publishing industry-level flow data in As Morningstar asset-flow data on European funds (excluding money market funds, feeders, funds of funds, and ETFs) indicates, inflows into bond funds remained strong in ruary and have yet again outpaced equity fund flows. Fixed-income funds gathered EUR billion versus EUR 9.24 billion enjoyed by equity funds. Allocation funds also topped equity funds in ruary, gathering EUR 9.91 billion. The lion s share of flows targeting mixed-asset funds was sent into EUR cautious and EUR flexible funds. Alternative, convertible, and property funds were also well in positive terrain, and of all broad categories only commodity fund flows were in the red on the back of redemptions out of precious metals funds. European Open-End Funds Excludes money market, feeder, and funds-of-funds Estimated Net Flows Mil YTD Net Assets Allocation 9,912 18, Alternative 2,890 4, Commodities (209) (62) 24 Convertibles 1,198 2, Equity 9,242 25,152 1,790 Fixed Income 11,458 30,746 1,585 Property Unclassified 121 (386) 7 All Long Term 35,094 82,049 4,441 Within the Morningstar categories, the strongest inflows were seen--yet again--by other bond, a mix of fixed-term bond funds, structured funds, and share classes hedged to currencies not supported in more-specific bond categories, followed by EUR cautious and flexible allocation funds, which enjoyed increasing demand by fund investors. Global emerging-markets bond funds remained very much sought-after in ruary, as were emerging-markets equity funds, which again saw the highest monthly inflows into any equity category. Morningstar, Inc. All rights reserved.

2 Leaders Morningstar Categories by ruary Estimate Net Flow Estimated Net Flows Mil Other Bond 3,358 6,902 45, EUR Cautious Allocation 2,558 4,950 12, EUR Flexible Allocation 2,488 3,926 7, Global Emerging Markets Bond Local Currency 2,135 4,686 13, Alt - Long/Short Debt 1,496 2,419 8, Global Emerging Markets Equity 1,465 6,026 19, High Yield Bond - Other Hedged 1,312 2,006 11, USD Flexible Bond 1,182 2,741 11, Global Large-Cap Value Equity 1,149 2,611 7, USD Moderate Allocation 974 1, Turning to the unloved categories, corporate bond funds continued to suffer outflows in ruary. EUR, USD, and GBP focused corporate funds posted redemptions in ruary, as did GBP diversified bond funds. Some high-yield bond categories have, however, remained very much en vogue, which suggests there is no clear rotation away from risk. Laggards Morningstar Categories by ruary Estimate Net Flow Estimated Net Flows Mil EUR Corporate Bond -1,301-1,573 6, GBP Diversified Bond ,111-1, USD Corporate Bond , GBP Corporate Bond , Guaranteed Funds , EUR Corporate Bond - Short Term , Sector Equity Precious Metals EUR Inflation-Linked Bond Emerging Europe Equity , Sector Equity Energy ,192 8 Morningstar, Inc. All rights reserved.

3 Among equity categories, ruary inflows of EUR 1.46 billion into global emerging-markets equity funds were notably less than in any month since August This reflects a more even distribution of net new money across equity categories. (Even Spanish equity funds saw relatively handsome inflows of EUR 320 million year to date.) As the table below indicates, 14 out of the 20 top-selling equity categories of the past 12 months saw above-average inflows in ruary. Top 20 Morningstar Equity Categories by 12-month Inflows Global Emerging Markets Equity 1,464 6,025 19, UK Large-Cap Blend Equity (84) (1,477) 8, Global Large-Cap Value Equity 1,149 2,611 7, Asia-Pacific ex-japan Equity 864 2,416 5, Global Large-Cap Blend Equity 878 1,747 3, Sector Equity Consumer Goods & Services , Europe Large-Cap Growth Equity , Global Equity - Currency Hedged 404 1,435 2, Other Asia-Pacific Equity 496 1,020 1,726 6 Europe Flex-Cap Equity , Hong Kong Equity ,395 6 Europe Small-Cap Equity 443 1,001 1, China Equity 77 1,248 1, US Large-Cap Growth Equity , Property - Indirect Global Global Frontier Markets Equity Global Small-Cap Equity ASEAN Equity UK Flex-Cap Equity (203) (29) Sector Equity Other UK equities were the only categories that have fallen out of favor in, with UK large-cap blend suffering notably high redemptions year to date. GBP allocation categories have, however, remained strong in, possibly indicating that the mood among British investors is sobering. The broadening base of asset flows also holds for the distribution of new assets across funds and fund providers. While in January only three providers accounted for 10 of the 15 top-selling funds (Allianz/PIMCO, Franklin Templeton, and M&G), the below list indicates a more diversified picture. Topping the list was the new Italian mixed-asset fund Gestielle Cedola Piu, which raked in a stunning EUR 1.28 billion within the initial subscription period. A strong runner-up was the Templeton Global Return fund, which also posted inflows of EUR 1.28 billion in ruary, marking yet another strong month on the back of a much-improved performance in PIMCO GIS Unconstrained Bond also had a strong month, gathering inflows of EUR 930 million. Morningstar, Inc. All rights reserved.

4 Top 15 funds by ruary inflows Gestielle Cedola Più 1,281 1,281 1,281 1,281 Templeton Global Total Return 1,279 2,570 4,905 25,136 PIMCO GIS Unconstrained Bd 933 1,577 4,671 8,477 PSSF Obbligazionario 02/2018 CC Deka Bund + S Finanz: ,631 ING (L) Renta Fd Global High Yield ,409 1,202 JPMorgan Asia Pacific Income Fund 715 1,602 2,162 2,349 BGF Global Allocation Fund (529) 10,691 Standard Life Global Abs Ret Strat 658 1,224 5,636 18,607 PIMCO GIS Income Fund 633 1,289 1,323 1,352 BlackRock ISF Dev Wld Idx Sub Fund ,585 7,726 M&G Optimal Income Fund 597 1,234 5,502 14,783 Wellington Global Total Return Portfolio ,069 Pictet-Emerging Local Currency Debt 499 1,062 2,481 7,413 Invest Solu Cedola X 5 12/12 RD 493 1,227 1,308 1,298 JPMorgan Asia Pacific Income, a mixed-asset fund, had yet another strong month, pulling in EUR 715 million and bringing year-to-date total inflows to EUR 1.6 billion. This fund, which saw a strong performance rebound in 2012 after a poor showing 2011, has virtually dominated net sales of the Morningstar Asia allocation category for the last 12 months, outpacing the secondlargest fund in the category, Schroder Asian Total Return, by a huge margin. BGF Global Allocation, which carries a Morningstar Analyst Rating of Gold, also staged a comeback in ruary, enjoying the highest level of inflows since November On the flip side, PIMCO flagship PIMCO GIS Total Return Bond Fund saw outflows of EUR 220 million in ruary. PIMCO GIS Global Investment Grade and the AB American Income Portfolio were also much unloved in ruary, suffering outflows of EUR 420 million and EUR 400 million, respectively. At the firm level, BlackRock grabbed the lead in ruary in a photo finish with PIMCO, closely followed by Franklin Templeton. JPMorgan and Aberdeen also saw hefty inflows. BlackRock profited twofold from the investors surge into a broader asset mix with allocation and equity funds gathering handsome inflows year to date. Morningstar, Inc. All rights reserved.

5 Leaders Fund Promoters by ruary Estimated Net Flow BlackRock 2,705 4,025 11, PIMCO 2,700 6,610 36, Franklin Templeton 2,314 5,755 6, JPMorgan 1,791 3,840 10, Aberdeen 1,552 4,179 10, We note that PIMCO has benefitted from a broader product base than Franklin Templeton. The slump Franklin Templeton experienced last year in flows owed mainly to Templeton Global Bond. While PIMCO has seen PIMCO Total Return Bond and PIMCO Global Investment Grade--its two largest funds--suffer outflows, this has not substantially affected the relative positioning of PIMCO in the European sales rankings, as inflows into the PIMCO Unconstrained Bond, PIMCO Income, PIMCO Emerging Local Bond, and PIMCO Diversified Income funds more than offset the outflows from the larger offerings. Aviva, Russell, Scottish Widows, Eastspring, and Skandia suffered the highest outflows last month as redemptions out of GBP funds took their toll. Outflows from GBP diversified bond funds hit Aviva the hardest; Scottish Widows saw continued outflows out of UK large-cap and equityincome funds; and outflows from UK flex-cap equity funds hit Skandia. Laggards Fund Promoters by ruary Estimated Net Flow Aviva (766) (933) Russell (421) (331) (462) 25 Scottish Widows (366) (1,040) 11, Eastspring Investments (337) (732) (7) 13 Skandia (296) (506) (1,046) 10 Data Notes: The figures in this report were compiled on March 19,. More than 26,000 of 30,000 funds that Morningstar tracks from 1,100 fund companies across 29 domiciles are included. Funds domiciled in Sweden are not included because they report assets on a quarterly basis only. BlueBay is not represented due to the firm s disclosure policy. To learn more about Morningstar Direct Asset Flows, visit us at this link. Morningstar, Inc. All rights reserved.