Funds Flows: Bonds and Allocation in Favour

Among equity funds, Japan Large Caps attracted large flows but UK Equity Income and Alternative funds remain unloved among investors

Annalisa Esposito 21 October, 2020 | 11:55AM
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Some £2.3 billion were poured into UK-domiciled funds in September, latest Morningstar research reveals.

In particular, allocation was the most popular asset class in the month, attracting some £1.6 billion in new subscriptions. However, three recently launched funds saw over half of the total inflows - Schroder Countrywide Managed Balanced, JPM Multi-Asset Moderate and JPM Multi-Asset Cautious.

In second position are fixed income funds, which saw inflows for the fifth consecutive month. This time the asset class attracted over £1.1 billion into both active and passive vehicles. “Since the record £6 billion outflow in March, the asset class has recovered, and inflows have since made up for the record outflow,” says Parekh.

In third position are equities, with £855 million in subscriptions. However, an otherwise poor month for equity funds was hidden by a large net inflow of £1.8 billion into a single fund, the three-star rated BlackRock ACS Japan Equity Tracker, which boosted the equity figure. Indeed, the active equity space was in negative territory, bleeding almost £2 billion of assets during the month.

At the other side of the spectrum, alternative funds, which had seen relatively limited outflows compared with previous months, saw a return to high net redemptions in September. Once again, their monthly net outflow was over £1 billion.

Elsewhere, property funds shed £106 million in assets. One of the larger funds in the property asset class, Threadneedle UK Property, re-opened in September, having been gated since March. Parekh points out that some £112 million was withdrawn from it in September “indicating that investors didn't panic-sell at the first opportunity”.

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Morningstar Categories: Winners and Losers

The most popular Morningstar category in September was Japan Large-Cap Equity, with £1.4 billion in subscriptions. Japanese funds were also the winners of the month - the best performing one produced 10.7%.

The US Large-cap Blend Equity category was also popular with investors. However, Parekh points out the category benefited from a £870 million net inflow into the four-star rated State Street ACS North America Index Equity. “Had it not been for this sizeable inflow, the category would have ended up at the opposite end of the table,” he says. He also believes that investors may have been concerned with the prospect of a delayed coronavirus stimulus package in the United States or looking to avoid potential volatility around the upcoming elections.

Elsewhere, the Property - Indirect Global category attracted £509 million in new subscriptions. In particular, the Bronze-rated iShares Global Property Securities Equity Index accounts for over half of the assets in the category. “Its large net inflow of £441 million helped to grow the category almost 9% in a month,” says Parekh. “This comes off the back of an even larger net inflow into the fund in August.”

On the reverse side of the table are the Alternative–multistrategy and UK Equity Income, which remain out of favour with investors. “Performance has often been poor in both cases, but especially in the case of UK equity income where year to date to the end of September the average fund lost almost 24%,” says Parekh.

Meanwhile, the UK Large-cap Equity and Europe ex-UK Equity categories also saw high net outflows. In particular, a net inflow of £220 million into the Gold-Rated Vanguard FTSE UK All Share Index was not enough to offset the half billion outflow from the equivalent three-star rated State Street UK Equity Tracker; and a £188 million net subscription to five-star rated Baillie Gifford European was trumped by a large outflow from the three-star rated State Street Europe ex UK Equity Tracker.

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Fund Groups

The most popular fund group in September was BlackRock, which saw £3.3 billion in subscriptions. However, excluding the £1.8 billion flow into BlackRock ACS Japan Equity Tracker, BlackRock saw a net inflow of £1.5 billion. Similar to August, this was driven by subscriptions into Bronze-Rated iShares Global Property Securities Equity Index and two ESG trackers - the BlackRock ACS World ESG Equity Tracker and BlackRock ACS World Multifactor ESG Equity Tracker.

In second position is Royal London's net inflow of £678 million went into its two main money market sustainable offerings that continued to attract assets. Money markets funds were quite popular during the month, as risk-averse investors looked for shelter.

At the other side of the spectrum, Invesco had the highest net outflow of any fund group in September (£504 million).This was primarily due to outflows from its largest fund - the Neutral-rated Invesco Global Targeted Returns (£308 million).  

Parekh highlights: “While Invesco has had the highest total net outflows of any group in 2020 so far (over £6 billion), third-quarter outflows were much smaller than in previous quarters.

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About Author

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