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Asset management trends in Europe spark lively debate

Jake Moeller

17 Nov 2017

Lipper Alpha Expert Forum
The panel at the Lipper Alpha Expert Forum

Thomson Reuters welcomed fund industry executives from across Europe to discuss the key developments and challenges for the asset management industry today.

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At the 12th annual Lipper Alpha Expert Forum event in London on 7 November 2017, a range of issues were explored, including:

  • The increased influence of environmental, social and governance (ESG) criteria on mainstream asset management.
  • The trend of fund selectors being increasingly prepared to hold fund managers to account on actionable ESG outcomes.
  • How rules-based and smart beta investment products are augmenting traditional passive offerings and allowing investors to move away from market capitalized indices.
  • The shift from quantitative easing (QE) to quantitative tightening (QT), high equities valuations and the challenge of maintaining returns in a balanced portfolio.

Watch video — Lipper European Alpha Expert Forum 2017

The evolution of ethical investing to ESG and beyond

At the event, our first expert panel discussed the increasing influence of ESG criteria on mainstream asset management.

Lawrence Gosling, Investment Week Founding Editor, moderates an ESG focused panel which included Trevor Allen - BNP Paribas, Chris Welsford – Ayres Punchard Investment Management and Andrew Parry – Hermes Investment Management
Lawrence Gosling, Investment Week Founding Editor, moderates an ESG focused panel which included Trevor Allen – BNP Paribas, Chris Welsford – Ayres Punchard Investment Management, and Andrew Parry – Hermes Investment Management

Find out how Lipper content and research can power everything from benchmarking to performance management and marketing

The panel noted that ESG can no longer simply be used as a marketing tool, and that investors and fund selectors are increasingly prepared to hold fund managers to account on actionable ESG outcomes, recognizing that ESG screens consistently improve performance outcomes.

The European flows environment

In his presentation, Head of Lipper EMEA Research, Detlef Glow outlined key patterns of flows into European mutual funds in 2017.

Glow highlighted that European fund net flows of over €600 billion to the end of Q3 2017 were on track to set a new annual record, with total assets under management in Europe passing the €10 trillion mark for the first time.

Lipper Alpha Expert Forum at Thomson Reuters Canary Wharf Office on 7 November
Lipper Alpha Expert Forum at Thomson Reuters Canary Wharf Office on 7 November 2017

According to Glow, the popularity of global equity funds, which have collected over €60 billion of net inflows, reflects investor appetite for regional diversification. He noted that flows and AUM are both dominated by active funds, despite the perception that the market is more disposed to cheaper passive products. Approximately 14% of total net flows for Q3 were into passive vehicles.

Despite potential Brexit headwinds and the popularity of other fund domiciles, the UK remained the major individual fund market in Europe with 20% of total assets.

 Find out how Lipper content and research can power everything from benchmarking to performance management and marketing

The rise of rules in asset management

Our second panel of the forum examined how rules-based and smart beta products are augmenting traditional passive offerings and allowing investors to move away from market-capitalized indices.

It was agreed that this is particularly valuable in a late-cycle environment.

Hector McNeil, co-CEO and founder at HANetf, who was one of the panelists for this session, encouraged the audience to reevaluate their perceptions of ETFs, arguing they should be considered a piece of technology rather than an asset class.

Also on the panel was Gregg Guerin, Senior Product Specialist at First Trust Global Portoflios, who highlighted how rules-based investments provided excellent diversification for investors, potentially providing them access to undervalued assets.

Trust Global Portfolios, Hector McNeil – HANetf, and Jason Xavier – Franklin Templeton ETFs, discuss developments in ETFs
Detlef Glow – Thomson Reuters Lipper, Gregg Guerin – First Trust Global Portfolios, Hector McNeil – HANetf, and Jason Xavier – Franklin Templeton ETFs, discuss developments in ETFs

While Jason Xavier, Head of EMEA Capital Markets at Franklin Templeton ETFs, pointed out how the European regulatory environment is influencing the market for ETFs, noting its potential to increase retail demand.

It was recognized that, increasingly, themes such as technology and ESG are the next innovations for the ETF market.

Find out how Lipper content and research can power everything from benchmarking to performance management and marketing

2017 macro review and outlook for 2018

The final session discussed the increasing interest rate environment, central bank activity, and liquidity dominated the panel.

One of the panelists Keith Wade, Chief Economist at Schroders, noted that despite the global shift from quantitative easing (QE) to tightening (QT), there will still be sufficient liquidity to maintain bond yields at around 3%.

Another panelist Patrick Armstrong, CIO at Plurimi Investment Management, warned that investors should reduce return expectations in respect to higher equities valuations.

On the assumption of nominal growth and earnings growth of 4.5% over the next seven and an average multiple of 16.5x in 2025, the S&P500 would produce a return of only 1.3% per annum, he stated.

Jake Moeller – Thomson Reuters Lipper, Keith Wade – Schroders, Patrick Armstrong – Plurimi Investment Management and Jason Day – Standard Life Wealth discuss the outlook for 2018
Jake Moeller – Thomson Reuters Lipper, Keith Wade – Schroders, Patrick Armstrong – Plurimi Investment Management and Jason Day – Standard Life Wealth discuss the outlook for 2018

Another panelist, Jason Day, Senior Investment Manager at Standard Life Wealth, noted that returns on a balanced portfolio will be more difficult to maintain, and he observed the large dispersion between value and growth assets.

Find out how Lipper content and research can power everything from benchmarking to performance management and marketing

The panel concluded that valuations across many asset classes are on the high side, but the members favored risk assets over bonds.

Both emerging market debt and equities were popular. European and Japan equities were preferred over U.S. equities. Inflation, too, could now begin to stir as labour markets become tighter.

The 12th annual Lipper Alpha Expert Forum event in London on November 7th 2017, hosted by Thomson Reuters in partnership with the Chartered Institute of Securities and Investment, is one of the European mutual fund industry’s premier thought-leadership events.

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