EU must make 'decisive policy shift' to attract savers amid growth of equity UCITS in US assets

A decisive shift in policies is required to mobilize private savings towards the EU economy, the European Fund and Asset Management Association said today (20 June) in its latest research findings that the outperformance of US stock markets had led to increasing allocation of equity UCITS assets to US stocks.

In the European Fund and Asset Management Association (EFAMA) Market Insights series, titled “The EU Must Adopt a New Deal to Mobilize EU Savings” it said that 44.6% of the portfolio of equity UCITS was invested in US assets by the end of 2023, compared to 19.2% in 2012.

The high exposure of equity UCITS to foreign assets is specific to Europe, it said. In 2023, equity funds domiciled in the EU and the UK had 27% and 29% of their portfolios invested in local stocks, respectively, compared to 78% and 84% for equity funds in the US and Asia-Pacific region.

EFAMA said several factors could explain the lower home bias among European investors, including their views on the benefits of cross-border investments, the role of financial advisers, the development of fund platforms facilitating investments in funds tracking global indices, the relatively small size of EU stock markets, and enthusiasm for leading US technology companies.

The strong performance of US markets, which led to an increased allocation of equity assets to US stocks, reflected a combination of factors and policies, including robust population growth, greater spending in research and development, substantial fiscal stimuli, and lower energy prices. As a result, economic growth in the US had surpassed that of the EU in recent years.

Attracting capital to the EU economy would require unlocking the potential of the Single Market, creating an effective Capital Markets Union, strengthening the competitiveness of the EU economy and its firms, and reorienting the Retail Investment Strategy.

Bernard Delbecque, senior director at EFAMA added: “A decisive shift in EU policies, particularly competition and industrial policies, is required to enhance investment opportunities, boost the valuation of Europe-based companies in global stock indices, and increase asset owners’ investments towards EU companies. Once asset owners foresee more promising prospects in the EU, they will increase their investments in the region, thereby supporting the financing of the green and digital transitions.”