European sovereign bonds now with record high outflows since May'09...

Deutsche Bank Markets Research Europe Periodical Weekly Fund Flows Date 5 July 2015 European sovereign bonds now with record high outflows since May'09... ________________________________________________________________________________________________________________ Deutsche Bank AG/London Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 124/04/2015. Jan Rabe Strategist (+49) 69 910-31813 jan.rabe@db.com Thomas Pearce Strategist (+44) 20 754-16568 thomas.pearce@db.com Andreas Bruckner Strategist (+49) 0 69910-32787 andreas.bruckner@db.com Relative Vol matters for European ETF flows -20%-15%-10%-5%0%5%10%15%20%-1.75-1.25-0.75-0.250.250.751.251.752010201120122013201420153M chg in ETF flow rel. [equity vs bonds], rhsRel vol. [equity vs bonds], rhsEquity vol exceeds rates vol (lhs) > rotating ETF flow into bonds (rhs)Rates vol exceeds equity vol (lhs) > rotating ETF flow into equities (rhs) Source: Bloomberg Finance LP, EPFR, Deutsche Bank Flow data on funds (all including ETFs) Total assets in EPFR sample ($bn)12m cum. flow as % of AUM4wk avg. flow as % of AUMTotal Equity Funds8,7501.40.0 Total Developed Market Equity Funds7,8061.90.0 International Equity Funds2,1336.00.1 US Equity Funds4,171-1.40.0 Western Europe Equity Funds1,1474.20.1 Japan Equity Funds30012.10.7 Total Emerging Market Equity Funds945-2.4-0.2 Global Emerging Market Equity Funds458-2.2-0.1 EMEA Equity funds45-5.4-0.2 Latin America Equity Funds24-23.1-0.6 Asia ex-Japan Funds417-0.7-0.2Total Bond Funds3,8686.2-0.2 Corporate High Yield Funds4826.8-0.5 US Bond Funds1,678-5.80.0 Western Europe Bond funds16011.7-0.2 Emerging Markets Bond Funds274-0.4-0.1 Asia ex-Japan Bond funds2311.31.5 Emerging Europe Bond funds2-22.7-0.3 Lat-Am Bond funds29.7-0.9Money Market Funds3,5511.2-0.3Global Sector FundsCommodities / Materials Sector Funds154-1.40.1Consumer Goods Sector Funds6011.7-0.1Energy Sector Funds13522.0-0.1Financials Sector Funds876.20.7Healthcare & Biotech Sector Funds11722.90.7Real Estate Sector Funds2861.7-0.1Technology Sector Funds720.80.2Telecom Sector Funds57.7-0.5Utilities Sector Funds42-6.7-0.4European country fundsUK239-2.00.1Germany67-9.10.7France43-7.6-0.1Italy12-13.30.0Switzerland950.90.0Netherlands1-11.60.6Thematic FundsInflation Protected Bond Funds811.0-0.1 Source: EPFR, Deutsche Bank calculations This weekly publication reviews flows in/out of funds on an international basis. What could possibly be of ‘value-add’ ahead of the Greek referendum from a fund flow perspective? How about a debate on principles around higher rates volatility in Europe (ahead of VSTOXX levels) against the backdrop of record outflows for sovereign bond mandates and how this drives a domestic ‘bond-to-equity’ rotation via ETFs (possibly a harbinger for mutual fund flows)? We think rates volatility should be a major focal point of equity fund managers when assessing risks these days. Our discussion concludes that our base case of an orderly “rates normalization” should be beneficial for equities. However, risk-reward can deteriorate quickly depending on how the ECB will be able to manage supply/demand of sovereign assets – a philosophical debate in the end, but one where it’s increasingly important to have a strong view (see pages 02-03 for details). Across asset classes – Equities hold up (~) while Bonds and MMs (--) suffer: The most interesting observation from a cross asset perspective over the past week (wed-wed) has been sustained losses for sovereign European bonds – record outflow since May’09. This has been a major driver for total bond funds’ weakness in aggregate (-0.2% of NAV). Equities on the other hand held up better (-0.0%), where EMs (+0.4%) helped buffer redemptions for DMs (-0.1%). DM equities with outflows, driven by US funds (-) vs. Europe (+), Japan (++): US equity funds were not able to sustain inflows observed in the week prior to the last and suffered from 8-week high redemptions (-0.2%, ETFs: -0.4%, MFs: -0.2%) which was accompanied by the VIX hitting the highest reading since February this year. These outflows wiped out gains for Japanese (+0.4%, ETFs: +0.2%, MFs: +0.8%) and European peers (+0.1%, ETFs: +0.5%, MFs: +0.0%). Noteworthy at this stage is the pattern for European mandates, where we’ve seen inflows amidst all noise around the GREXIT debate – in fact, gains for a 7th week in succession despite slight redemptions from US-domiciled funds investing European equities (-0.0%) – only the se