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Investors Sell Aberdeen Funds Following Merger News

Growing demand for passive funds makes BlackRock the most popular fund house year to date. Standard Life and Aberdeen have seen outflows since the merger announcement

Karen Kwok 31 July, 2017 | 3:09PM

Investors in the UK poured £6.6 billion into BlackRock funds in the first six months of the year, making it the most popular asset manager of 2017. In April, the fund house saw the largest monthly inflows in five years with £2.3 billion in a single month, according to Morningstar Direct data.

Data also revealed that M&G is the second most popular fund house of the year with £5.9 billion of inflows. It was followed by Royal London and Aviva, which recorded inflows of £2.2 billion and £1.7 billion respectively.

At the bottom of the pile, investors pulled £2.5 billion out of Standard Life and £1.7 billion out of Aberdeen Asset Management, making them the least popular fund houses of the year.

Standard Life and Aberdeen announced a merger in March 6 this year, which will make it the largest asset manager in the UK with about $660 billion of assets when the merger is completed.

Demand for Index Funds Drives Inflows

The popularity of passive funds continues to rise – and as one of the world’s largest provider of trackers and ETFs, BlackRock is a beneficiary.

Looking at fund houses with the most inflows in the year, three out of top six fund houses’ businesses are dominated by index fund products: BlackRock, Vanguard and Legal & General.

As the most popular provider, BlackRock’s inflows were driven by new money its index funds.

The most popular fund was the Bronze Rated iShares Corporate Bond Index , with inflows of £1.5 billion in the first six months of the year. It is followed by iShares Index Linked Gilt Index with £1.3 billion inflows.

Not all BlackRock’s funds proved popular though – with money flowing out of its actively managed funds, led by BlackRock Dynamic Diversified Growth and BlackRock Dynamic Return Strategies.

BlackRock cut more than 30 people from its active equities group in March this year, including portfolio managers. BlackRock is the world largest asset manager in the world with more than $5 trillion in assets under management.

Vanguard and Legal & General recorded £1.7 billion and £1.6 billion inflows respectively.

Standard Life GARS Disappoints

Standard Life had seen consecutive outflows since October last year, while investors have been pulling money out of Aberdeen since October 2014.

At the time of the merger, Randal Goldsmith, fund analyst with Morningstar, cautioned investors against making any pre-emptive moves until there was greater clarity around the merger and the impact it might have on its underlying investment teams and product ranges.

“Given Aberdeen’s strength in emerging market equities and Standard Life’s more diversified stable of products dominated by their multi-asset range, we feel the merger of the two will be complementary – and may not lead to much rationalisation of their offerings,” said Goldsmith.

Within Standard Life, Morningstar data showed that Standard Life Investments Global Absolute Return Strategies, which is Bronze Rated by Morningstar analysts, took the worst hit in terms of fund flows. The fund recorded £2.6 billion outflows in 2017, extending its monthly outflow streak since September last year – totalling a whopping £3.6 billion.

Since the global financial crisis the success of the Global Absolute Returns Strategies fund and the resulting strong asset growth has led it to dominate other investment offerings in Standard Life’s line-up, said Goldsmith.

However, Standard Life saw significant outflows in 2016 driven by disappointing results from their Global Absolute Returns Strategies fund’s offerings, Goldsmith added.  

“GARS’ three-year return to the end of March 2017 was below its Libor +5% gross target, mainly because of disappointing performance in 2016 when it lost 1.8%. The largest individual losing position in 2016 was short US duration,” said Goldsmith.

M&G Bounces Back After 2 Years of Outflows

After 20 months of outflows since March 2015, M&G finally regained investors’ confidence, recording £5.9 billion of inflows year to date.

The Silver Rated M&G Optimal Income fund was the most popular fund with £2.5 billion inflows in the first half of the year. This is followed by M&G Global Floating Rate High Yield and M&G Dynamic Allocation, which have £2.2 billion and £1.3 billion inflows respectively.

Ashis Dash, associated director of fixed income strategies at Morningstar said M&G Optimal Income fund manager Richard Woolnough’s expertise in macroeconomic analysis and ability to allocate across the fixed-income universe underpin the fund's unconstrained approach. 

The fund comfortably outperformed its GBP Cautious Allocation Morningstar Category since its inception in December 2006 through June 2017, both on an absolute and risk-adjusted basis, said Dash. However, it has lagged the pack in more recent years, with the fund’s aggressive short-duration stance holding back returns since 2014. 

Dash believes this was a key driver behind the significant outflows from the fund, with its assets dropped from a peak £25 billion in early 2015 to £14.5 billion in May 2016.

“However, the fund’s performance picked up in late 2016, benefitting from a combination of its lower duration and a timely addition to high yield and financials. It has also seen strong inflows since, taking fund assets to £19.2 billion as at June 2017,” said Dash. 

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About Author Karen Kwok

Karen Kwok  is a Reporter for Morningstar.co.uk