Funds Flows: What to Expect in H2

VIDEO: Morningstar analyst Bhavik Parekh looks at where UK investors have put their money in the first half of 2020, and what trends we can expect for the rest of the year

Holly Black 27 July, 2020 | 12:14AM

 

 

Holly Black: Welcome to Morningstar. I'm Holly Black. With me Bhavik Parekh. He is an analyst at Morningstar.

Hello.

Bhavik Parekh: Good morning, Holly.

Black: So, you are here to give us the monthly roundup of where investors have been putting their money. You look at the inflows and outflows from the different categories and sectors. What did you see in June?

Parekh: So, in June, we saw quite a marked shift in investor behavior. If we consider equities, for example, equities had quite a large outflow. The total net outflow was over 2 billion. And this was quite different to what we saw in previous months where throughout 2020 up till June, even in March and April where there was quite a lot of volatility, they had either inflows or at least not outflows. So, that was quite a shift there. Similarly, fixed income, we saw some inflows. That came off the back of a record outflow for fixed income funds in March. So, clearly, investors have shifted a little bit, maybe they are a bit more cautious. Whether that's coronavirus or maybe Brexit-related is hard to say.

Black: So, we're at the halfway point of the year now and probably that first half hasn't turned out as many people might have predicted. So, what would you say are some of the sort of winning areas so far this year?

Parekh: Yeah. So, when I think about the two areas where investors have been very keen on, one is sustainable funds and two is equity growth funds. Generally, when an area of the market has been performing well or is performing well such as growth, investors are allocating to those areas. So, to see growth funds continuing to see inflows is in line with expectations. But in the case of sustainable funds, we saw throughout 2019 that interest started to pick up and really in 2020 I would say it's exploded. We've seen funds – established funds that have been around for many years, their fund size has doubled over the space of six months because the interest has been so strong.

Black: Okay. Well, let's think about the other end of this spectrum. Which areas have been the least popular with investors?

Parekh: There are two areas which have seen lots of outflows – one, alternative funds and two, income funds. In the case of alternative funds, really, they've been unpopular for a couple of years now. Now, we've discussed the troubles that they've had in great detail. But I think that they're just not popular at the moment with investors. And so, we're just seeing continued outflows and probably that will continue for a while.

Black: Okay. So, I know you're not in the business of making predictions, but do you have any insights as to how you see the second half of the year playing out?

Parekh: Yes, it's always hard to tell what investors are going to do. As we saw in the first half of the year, investors can change their mind very quickly month-to-month. But I think that really it's two topics that are going to determine how investors behave. One is coronavirus and the other is Brexit. If we see positive news coming out of both of those areas then we might see investors a bit more bullish and they might invest in the riskier assets. But if we see maybe a second wave in coronavirus on the horizon and maybe a harder form of Brexit is likely, then investors may continue to be a bit more cautious and we might see outflows from equities, for example. So, let's hope that we have some positive outcomes from those.

Black: Bhavik, thank you so much for your time. For Morningstar, I'm Holly Black.

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.

About Author

Holly Black  is Senior Editor, Morningstar.co.uk

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