European money market funds (MMFs) last year recorded their highest annual net outflows since 2010 as continuing low interest rates persuaded investors to divert their cash to higher yielding assets such as bonds and equities, reports Fitch Ratings.
The credit ratings agency (CRA) reports that European MMFs, which control about €1 trillion in assets, saw net outflows of €69.2bn in 2013 – nearly double the previous year’s figure although still well below the €158.7bn withdrawn by investors in 2010, when the sovereign debt crisis in the eurozone was escalating.
Last year’s redemptions coincided with the tentative signs of economic recovery in the region and a more bullish performance by Europe’s equity and high-yield bond markets, which persuaded many investors to adopt a different policy and opt for yield.
“Given low interest rates the overriding trend has been outflows from the money market industry for a sustained period of time,” said Alastair Sewell, director in Fitch’s fund and asset managers group. “But last year saw an increase in asset allocation decisions out of cash into risk assets.”
Andrew Paranthoiene, director of money market analysis at Fitch’s rival, Standard & Poor’s (S&P), described MMFs as “like a souped-up bank account.”
“Since mid-2012, when the European Central Bank [ECB] cut interest rates, MMF returns have averaged about four basis points – so investors are losing money after inflation,” he added.
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