Investing in Mutual Funds Is Big Over There Too

Mutual fund fever is sweeping Europe.

With short-term bank and bond yields in much of Europe lower than even U.S. interest rates, individual investors in Europe have been shoveling cash into stock funds at a brisk pace in search of higher returns.

Salomon Smith Barney Inc. analyst A. Steven Englander noted in a recent report that individuals’ net purchases of non-money-market mutual funds in Europe “roughly doubled last year in France, more than doubled in Italy and roughly quadrupled in Germany.”

And given most European markets’ huge gains in the first quarter of this year, there is little to discourage continental investors from pushing even more cash into stocks, analysts note.

Whereas the Italian stock market has risen 37.4% already this year, the annualized yield on three-year Italian government notes is a mere 4.5%. That’s even less than the 5.7% yield on three-year U.S. Treasury notes.

Another force driving money into European stocks: “Steadily aging populations and uncertainties about [state] welfare systems are encouraging long-term savings” in Europe, Englander said.

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Still, compared with the United States--where stock fund purchases have boomed for most of this decade--Europe’s love affair with equities is in an early stage.

The level of equity-based mutual fund assets in the core European economies “still lags the United States by a wide margin,” Englander noted.

The most recent data available show that the value of equity fund assets (household monies as well as institutional monies) was less than 6.5% of gross domestic product in Germany, Italy and Spain as of last September--compared with about 30% in the United States.

“A steady flow of household savings probably will, as in the United States, help support equity and bond markets at valuations that are high by earlier norms,” Englander said.