Investors pulled £1.3 billion out of UK equity funds in July as recession and Brexit fears continue to cast a cloud over the region. Morningstar Direct data shows that property funds, particularly those focused on the UK, also suffered heavy outflows in the month.
Uncertainty over the prospects for the global economy has seen investors flock to perceived safe havens in recent months. Money Market funds saw their sixth consecutive month of inflows while investors pour £428 million into Fixed Income funds.
Overall investors withdrew £2.4 billion from funds in July, bringing total outflows for the past year to a staggering £35.1 billion. Morningstar analyst Bhavik Parekh says: “With the appointment of Boris Johnson as prime minister, a hard Brexit has become increasingly likely and investors have further shunned UK assets.”
Flows by Asset Class
Even funds which had previously managed to buck the trend, have been dropped by investors as the prospect of a UK recession has looked increasingly likely. The Silver-rated JOHCM UK Equity Income fund suffered its largest ever monthly outflows in July, with £257 million withdrawn from the fund in the month. That is perhaps not surprising considering the fund was among the 10 worst performers in the month, down 1% over the period.
Meanwhile, Neutral-rated Majedie UK Equity suffered outflows of £200 million in the month while the M&G Property Portfolio and Aberdeen UK Property funds accounted for 89% of the total amount withdrawn from the property asset class in July.
“The prices of commercial property – which accounts for most of these funds’ investments – are heavily influenced by the macro environment and if investors believe a downturn is ahead, they are less likely to invest in property funds,” explains Parekh. He also points out that property funds have also been criticis'9ed of late for charging fees on their high cash allocations, which often account for 20% or more of assets.
The fiove-star rated Jupiter European fund saw £298 million withdrawn by investors after the news that fund manager Alexander Darwall would be leaving the group to start up his own boutique fund firm. Meanwhile, absolute return funds continued to bleed assets, with £301 million withdrawn from the Neutral-rated ASI Global Absolute Return Strategies fund (previously Standard Life GARS) in the month. The former absolute return fund stalwart has haemorrhaged money in recent months, with total assets down from a peak of £26 billion to £7.8 billion at the end of July. There have been concerns about the performance of absolute return funds as many have struggled to beat their own targets.
Top and Bottom Fund Flows
The BlackRock ACS World Low Carbon Equity Tracker fund attracted the greatest amount of investor money in the month. The fund tracks the MSCI World Low Carbon Target Index, investing in companies with lower potential carbon emissions relative to their market cap. Its portfolio features the likes of Apple, Microsoft and Amazon. It attracted some £523 million of net inflows in the month, more than doubling its total assets to £932 million.
For investors seeking sustainable investment options, however, it is worth pointing out that the fund is only ranked as "average" according to Morningstar's sustainability rating. Parekh explains that this is because the low-carbon index it tracks is restricted in how much it can deviate from the general MSCI World index, meaning it still includes some stocks which are not low-carbon.
Two more trackers feature in the list of funds with the greatest inflows in July. The iShares Overseas Corporate Bond Index fund attracted £263 million of new assets and ASI Global Corporate Bond Tracker fund £240 million, demonstrating investor appetite for low cost options and fixed income assets.
