European investors have used the end of the second quarter to adjust the currency positions in their portfolios reducing their GBP exposure, amid growing concerns over a potential “no deal” Brexit.
June saw a sharp increase in outflows from money market funds, from €6bn (£5.4bn) in May to €21bn (£19bn) the next month, reinforcing already negative data for European Ucits funds, European Fund and Asset Management Association (EFAMA) revealed.
While money market funds often report a spike in outflows towards the end of a reporting period, having dropped by €33bn (£29.9bn) in June last year, the most recent adjustment comes amid an overall decline in net Ucits sales, from €9bn (£9bn) to €25bn (£22.6bn) month on month.
Excluding money market fund outflows, Ucits recorded net outflows of €4bn (£3.6bn) in June, compared to €3bn (£2.7bn) in outflows the previous month.
More recent data from Lippper suggest that investors have used the end of the reporting period to sell GBP money market funds and increase their exposure to other currencies, most notably the Euro and USD. As of July, money market funds reported net inflows of €8.1bn (£7.3bn), including €7.6bn (£6.9bn) of net inflows into USD denominated funds and €6bn (£5.4bn) into Euro denominated funds while GBP denominated money market funds reported €5.5bn (£5bn) in net outflows.
“Comparing this flow pattern with the flow pattern for June showed that European investors reduced their positions in the GBP while they built up positions in the US Dollar and the Euro” Lipper confirmed.
Recent trends on currency markets illustrate that investors might have caught the right tone. Following Theresa May’s statement that a no deal Brexit would be better than a bad deal, the pound dropped to its lowest level in 11 months, reaching €1.099 at the end of August.
Investor caution over the Brexit outlook extended to the broader UK fund market. The UK remained the fund domicile with the highest net outflows of €2.9bn (£2.6bn) in July. In contrast, France appeared to benefit from growing demand for Euro denominated money market funds, reporting net inflows of more than €9bn (£8bn) in July, Lipper data showed.
