Investors Turn Cautious in July

Morningstar's latest fund flow figures show investors searching for safety in July, but the attraction of US growth stocks continues to inspire those willing to take on risk

Annalisa Esposito 18 August, 2020 | 9:27AM
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Piggy Bank

With coronavirus cases increasing once more and fears of a second wave intensifying, investors turned towards less risky assets in July. While investors poured £2.4 billion into funds in the month (excluding money markets), most of the money was funnelled into more cautious choices such as fixed income and allocation funds. 

Fixed income funds, in particular, attracted some £1.9 billion of new money in July with sterling and global sterling-hedged bond funds among the most favoured choices of investors. Morningstar analyst Bhavik Parekh points out the average corporate bond fund has returned 5% since the beginning of the year to July end, “far better than the average for an equivalent UK equity category,” he says.

Meanwhile, the allocation category saw £1.4 billion of subscriptions. JPMorgan Multi-Asset Income and Royal London Sustainable Diversified - both Bronze-Rated by Morningstar analysts - stand out among the group, attracting £215 million and £113 million respectively. Allocation funds are multi-asset funds, mainly composed of equities and bonds, and therefore often a popular choice in times of uncertainty.

July Inflows

Equities Out of Favour

Meanwhile, amid fears the stock market recovery may stall, equity funds bled £830 million in July. However, not all equity funds were out of favour; Morningstar data shows that £1.2 billion was invested into sustainable funds in the month, with more than half of that money going into equity-focused options. 

US and growth-focused funds remain popular too, says Parekh, which accounts for inflow into the global large-cap growth category. “Funds in this category usually feature a large weighting to US growth stocks, one of the best-performing areas of the market in 2020,” he says. Within this category, the five-star rated Baillie Gifford Positive Change and Gold-Rated Fundsmith Equity (the UK's largest fund) saw the highest net inflows in the month. 

Conversely, the UK Equity Income category has fallen out of favour once more, likely driven by concerns over the wave of dividend cuts undertaken by British businesses in recent month. “Funds in this category have had a difficult year as dividends have been cut. The average fund in the category s still down 20% this year,” says Parekh.

Elsewhere, alternative funds also continued to bleed assets, although in July the tide of outflows was stemmed to just £58 million. Outflows from alternative funds have been slowing for some time, and July saw the lowest monthly outflow since May 2018. Parekh adds: “This represents a marked shift from 2018 and 2019, when we regularly observed over £1 billion in a single month flowing out from the Morningstar category.”

fund flows july

Meanwhile, activity in money market funds has been limited over the past few months – in July there was a net inflow of £60 million. Parekh believes this is “given by lower rates and better opportunities in higher-risk areas of the market.”

Winners and Losers

Once again, Baillie Gifford was the most popular asset management group, attracting some £991 million of new money in July, its highest ever in a single month.

“The strong performance of its typically growth-orientated equity funds has been the driver of the firm's popularity,” explains Parekh. “Within their respective categories, many Baillie Gifford funds were among the very top sellers in July, highlighting the fact that their house style has been very strongly in favour with investors.”

The group was followed by investment giant BlackRock and passive specialist Vanguard, which attracted £776 million and £179 million respectively in the month. Among Blackrock's offerings, BlackRock ACS World ESG Equity Tracker and Bronze-Rated BlackRock Gold and General attracted assets. “The price of gold has increased considerably in 2020 and reached a new all-time high of over $2,000 per ounce at the beginning of August,” says Parekh. “Interest in this Gold strategy may be due to investors preferring what they see as a 'safe haven' in gold, or opportunistic buyers looking to take advantage of the increase in the price of gold.”

On the other side of the spectrum, L&G and Aviva suffered outflows of £206 million and £145 million respectively in the month. 

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

Annalisa Esposito  is a data journalist for Morningstar.co.uk