Money managers say stock picking of European equities might be back in vogue, thanks to the most successful earnings season in seven years for European corporations.
After major outflows from European equities last year, inflows have rocketed since the beginning of 2017, particularly in the past few weeks, said Romain Boscher, global head of equities at Amundi in Paris. That compares with net outflows of $100 billion in 2016, he said. Amundi has €1.13 trillion ($1.23 trillion) under management; a breakout of European equities could not be learned by deadline.
Sources said optimism on the prospects for corporate Europe is high, because of the strong U.S. dollar and cheap equity valuations. Illustrating their confidence in the region and in its companies, foreign investors in the first quarter announced a record $345 billion of planned acquisitions, including Johnson & Johnson's $29.3 billion takeover of Swiss biotech company Actelion.
Industry sources think the fresh inflows foreshadow a much stronger capital reallocation by pension funds and other institutional investors into the Continent's equity market.
According to EPFR Global, a provider of fund flow and asset allocation data based in Cambridge, Mass., flows into dollar-denominated European equity funds shot up to $6.5 billion so far in 2017, beginning an upward trend around mid-March. European euro-denominated equity funds followed suit to approximately $7 billion. Both of these types of funds temporarily saw outflows as recently as January this year.
Some sources believe that the hot European stock market could boost active management strategies overall.
“2015 and 2016 were dominated by defensive/low-volatility strategies but this year the tactics will change in favor of stock picking,” Mr. Boscher added.