Investors Sell £9bn Bond Funds

Investors sold more bond funds than any other asset class throughout the year. But which fund turns out to be investors' favourite in 2015?  

Karen Kwok 22 December, 2015 | 3:57PM
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Investors sold out of more bond funds than any other asset class this year, with net outflows of £8.7 billion. Worst hit were corporate bond funds, which saw outflows of £6.2 billion according to Morningstar Direct data.

In November alone investors sold out of £701 million worth of corporate bond funds, although this is far from the outflows of January where funds recorded outflows of £2.6 billion.

The least popular fund of the year was M&G Optimal Income, with outflows of £6.2 billion. The fund is rated Silver by Morningstar. Fund analyst Ashish Dash recently commented that the primary reason for these has been the fund’s underperformance over the last two years.

“Furthermore, the fund is one of the largest in its Morningstar category and is widely held by European retail investors who tend to be more sensitive to short term performance and hence more active in their asset allocation,” he said.

Dash said that despite the recent underperformance, Morningstar analysts retain their conviction in this strategy.

“Richard Woolnough is a highly experienced fixed-income manager who has successfully managed funds across multiple credit cycles. At Morningstar, we have a very high regard for his top-down macro views, as well as his ability to asset allocate across the fixed-income spectrum,” he concluded.

M&G Global Dividend was second least popular fund of the year, with outflows of £2.7 billion.

The third least popular fund of the year was Newton Asian Income, with outflows of £2.2 billion. Most months saw the fund lose money, with June the worst month on record with outflows of £504 million.

What Were Investors Buying?

The most popular Morningstar category this year was Multistrategy, which is mainly Absolute Return funds, with inflows of £7.1 billion.

August was the best month of the year for Multistrategy, with an inflow of £1 billion. Europe Large Companies excluding UK funds was the second most popular Morningstar sector with inflows of £3.2 billion.

The most popular fund this year was Invesco Perpetual Global Targeted Return with inflows of £3.4 billion.

Woodford Equity Income came second with inflows of £2.9 billion in the year to the end of November. The fund has seen inflows of £467 million in November, the most popular fund of the month.

Fund analyst Daniel Vaughan commented that the long term track record of Woodford at his previous employer Invesco Perpetual proved his ability to stick to his strategy even during periods of poor performance.

“The strategy of this fund is clear, set with the objective of generating a positive capital return over the long term and growing the income whilst offering capital preservation.” Vaughan said.

The fund is rated Bronze by Morningstar. Vaughan said that although they had no tangible concerns about Woodford, they were expressing some caution in the fund’s rating given the start-up nature of the firm.

“Woodford is the sole and ultimate decision-maker on this fund, but he is joined by three former colleagues from Invesco Perpetual. Though much less experienced than Woodford, we are happy this group can add rigour around the stock selection, especially for the unquoted names. They have been able to quickly gather a considerable asset base but were slower to finalise governance structures and compensation policies,” he said.

The third fund following behind Woodford was SLI Global Absolute Return Strategy, with inflows of £2.6 billion. The fund was popular throughout the year however it did see outflows of £198 million in October.

Which Were the Winning and Losing Fund Houses?

Woodford was the winner among fund houses, with inflows of £2.9 billion this year. The asset manager started in June 2014, and it has seen constant inflows ever since. The second most popular fund house was BlackRock, with inflows of £2.6 billion. Vanguard followed as the third popular fund house, with inflows of £2.1 billion.

M&G was the least popular asset manager of the year, with outflows of £10.2 billion. Ignis came second with outflows of £4.6 billion. BNY Mellon was the third least popular fund house with outflows of £4.5 billion. 

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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Karen Kwok

Karen Kwok  is a Reporter for Morningstar.co.uk