December marked a major turning point as investors finally began to pour money back into funds after a sustained period of net outflows. The so-called "Boris bounce" and an end to Brexit uncertainty prompted a change in the tide, as almost £1.7 billion was piled into funds in December.
But it wasn't enough to put flows back into positive territory for the year as a whole - an eye-watering £17 billion was pulled out of funds in the year, according to the latest data from Morningstar.
Where Did Investors Put Their Money in 2019?
Fixed Income was virtually the only asset class to achieve positive inflows through 2019, as investors looked for perceived safe havens and a reliable stream of income. But alternative assets felt the wrath of investors, and particularly Absolute Return funds, as many grew frustrated with disappointing returns.
Property funds endured another month of outflows, losing £444 million in December. The asset class is still out of favour after the M&G Property Portfolio fund suspended trading in December to avoid being forced into a firesale of its assets.
However, equities benefited from a Conservative General Election win and subsequent “Boris bounce", resulting in a net inflow of £819 million in the month.
Thank to the strong inflows in November and December, more than half of the 100 top-performing UK-domiciled funds in 2019 were UK equity funds. "It serves as a reminder of investors' inability to time the market," says Bhavik Parekh, associate analyst at Morningstar.
Almost half of the total outflows from Alternatives in the year came from the Neutral-rated ASI Global Absolute Return Strategies. It has seen its assets shrink from a peak of £26 billion to £4.6 billion today (see below table).
Investors have questioned the worth of Absolute Return funds, many of which have failed to perform in times of volatility. “The whole alternative asset class has been out of favour with investors for two years as performance has been disappointing,” says Parekh. Invesco Global Targeted Returns and Silver-rated BNY Mellon Real Return fund also saw heavy outflows.
Fund manager Mark Barnett also felt the weight of investors' disappointment; his Invesco High Income fund saw some of the largest outflows of the year. The fund suffered outflows of £1.8 billion in 2019 as a whole, and £243 million in December alone (see below table), as Morningstar analysts raised concerns about the fund's small-cap exposure and downgraded it to a Neutral Rating. The Silver-rated M&G Optimal Income fund, meanwhile, saw assets almost halve to £3.3 billion in the year.
On a category basis, the UK Equity Income and Europe ex-UK Equity categories saw some of the largest redemptions as uncertainty kept investors cautious on their home market for much of the year. “Uncertainty around Brexit and a slow-moving European bloc meant that investors favoured the United States over any other market,” says Parekh. Indeed, the Global Large-Cap Blend and US Large-Cap Blend categories had the highest net inflows of the year.
Trackers on Top
Meanwhile, tracker funds dominated the list of largest inflows both in December and 2019 as a whole, as many investors opted to follow the stock market rather than back an active manager. Indeed, open-ended passive funds saw their assets under management rise by 30% in the year as investors looked to the low-cost options.
Gold-Rated Vanguard FTSE UK All Share Index Unit Trust achieved net inflows of £1.8 billion in the year, while ASI Global Corporate Bond Tracker and the Blackrock ACS World ex UK Equity Tracker, each attracting around £1.6 billion of investor cash.
Which Firms Saw the Biggest Outflows of 2019?
At a firm level, Invesco suffered the worst outflows, totalling £9.3 billion in 2019 – with December the fourth consecutive month in which the firm bled assets. As well as Barnett's Income and High Income funds losing assets, the Invesco Global Targeted Returns fund has also suffered as Absolute Return funds have fallen out of favour. Parekh says the firm has “had a year to forget” as its assets under management dropped not just in the UK but around the world.
Aberdeen Asset Management also endured heavy losses, with assets shrinking by £8.5 billion. However, it's worth pointing out that £7.3 billion of this came from the ASI Global Absolute Return Strategies. Firms such as M&G, Schroders and Artemis, meanwhile, saw large net outflows as a result of reallocating assets to offshore vehicles in advance of Brexit.
At the top of the table, BlackRock was a major beneficiary of the trend towards tracker funds. The firms' iShares ETF business has helped drive a £6.9 billion surge in assets. Vanguard, another passive investment specialist, saw its assets increase an incredible 21.2%, albeit from a much lower base. The firm is fuelling a race to the bottom of fees in the tracker space.
“The world's two biggest asset managers have been the chief beneficiaries of the rise in passive investing,” says Parekh. As a percentage of net inflows for 2019, 71% and 96% went into passive vehicles at BlackRock and Vanguard, respectively.
