UK Equity Funds Off the Menu in February

MONEY FLOW: Morningstar asset flows data reveal fixed income continues to trump equity, while UK equity funds are the most unloved of all categories

Ali Masarwah 26 March, 2013 | 6:28PM
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European investors put a net EUR 35.09 billion into long-term open-end funds in February. This is down from the record-breaking inflows of EUR 47.1 billion seen in January, but nevertheless a solid inflow. By the end of February, EUR 4.44 trillion were invested in European long-term funds, the highest level recorded since Morningstar started publishing industry-level flow data in 2007.  

Bond Funds Continue to Outpace Equity Offerings

As Morningstar asset-flow data on European funds (excluding money market funds, feeders, funds of funds and ETFs) indicate, inflows into bond funds remained strong in February and have outpaced equity fund flows yet again. Fixed-income funds gathered EUR 11.46 billion versus EUR 9.24 billion enjoyed by equity funds. Allocation funds also topped equity funds in February, gathering EUR 9.91 billion.

The lion's share of flows targeting mixed-asset funds was sent into EUR cautious and EUR flexible funds. Alternative, convertible and property funds were also on solidly positive terrain, and of all broad categories only commodity fund flows were in the red on the back of redemptions out of precious metals funds.

Top-Ranking Categories

Within the Morningstar categories, the strongest inflows were seen--yet again--by Other Bond, a mix of fixed-term bond funds, structured funds and share classes hedged to currencies not supported in more-specific bond categories. This was followed in second place by EUR Cautious Allocation and EUR Flexible Allocation funds, which enjoyed increasing demand from fund investors.

Global Emerging-Markets Bond funds remained very much sought after in February, as were Emerging-Markets Equity funds, which again saw the highest monthly inflows into any equity category.

Unloved Categories

Turning to the unloved categories, corporate bond funds continued to suffer outflows in February. EUR, USD, and GBP focused corporate funds posted redemptions in February, as did GBP diversified bond funds. Some high-yield bond categories have, however, remained very much en vogue, which suggests there is no clear rotation away from risk.

Equity Funds Remain Popular…

Among equity categories, February inflows of EUR 1.46 billion into global emerging-markets equity funds were notably less than in any month since August 2012. This reflects a more even distribution of net new money across equity categories. (Even Spanish equity funds saw relatively handsome inflows of EUR 320 million year to date.) As the table below indicates, 14 out of the 20 top-selling equity categories of the past 12 months saw above-average inflows in February.

…But UK Equity Is Off the Menu

UK equities were the only categories that have fallen out of favour in 2013, with UK large-cap blend suffering notably high redemptions year to date. GBP allocation categories have, however, remained strong in 2013, possibly indicating that the mood among British investors is sobering.

Data Notes: The figures in this report were compiled on March 19, 2013. More than 26,000 of 30,000 funds that Morningstar tracks from 1,100 fund companies across 29 domiciles are included. Funds domiciled in Sweden are not included because they report assets on a quarterly basis only. BlueBay is not represented due to the firm’s disclosure policy. 

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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About Author

Ali Masarwah

Ali Masarwah  was the editor of Morningstar.de in Germany.