Where the Money Went in 2020

Passive funds attracted the lion's share of inflows in 2020 with £36 billion of new money, but active managers like Baillie Gifford and JPMorgan had a strong year

James Gard 20 January, 2021 | 9:30AM
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The final fund flows data of 2020 is in and we can now reveal the final scorecard after an extraordinary year for investors. Some £35.7 billion was added to UK domiciled funds, according to Morningstar Direct, with passive funds snapping up £33.1 billion of that. And 2020 was also a year when sustainable funds really came to the fore, bringing in £11 billion of new money. So which fund company, asset class and category came out on top?

Fund Flows 2020

Despite a volatile year on global stock markets, equity funds were the most popular option in 2020, followed by allocation and fixed income options. Rather than driving investors away, March's sell-off sparked a flurry of money into equity funds, says Bhavik Parekh, manager research analyst for Morningstar. “Equity investors were incentivised by markets that had suddenly become 30% cheaper” he says.

UK fund flows by category

An increase in risk appetite hurt the case for alternative funds, home to the biggest absolute return funds, which saw the greatest outflows in 2020.

Meanwhile, strong flows into allocation funds are reflected in the top 10 list of Morningstar categories by flows: GBP Moderately Adventurous Allocation attracted more than £5 billion in flows, followed by the GBP Moderate, GBP Moderately Cautious and GBP Adventurous categories.

But it was US Large-Cap Blend Equity which was the best performing category by flows, bringing in £11 billion, followed by £6.5 billion of new money for Global Large-Cap Blend Equity, which has the biggest assets overall at nearly £110 billion. While these “blend” categories combine growth and value strategies, they are skewed towards the better-performing growth funds.

“The US large-cap blend as well as the global large-cap blend and global large-cap growth categories, all of which have relative growth biases, saw some of the highest net inflows, thanks to their superior performance,” Parekh says.

Alternative Multistrategy saw the biggest outflows by category, shedding £7.8 billion, closely followed by UK Equity Income, which saw around £5 billion of outflows as the funds in this category struggled with dividend cuts, the underperformance of value stocks and the UK market being generally out of favour.

Top and bottom funds by flows

Trackers on Top

Tracker funds dominated the top 10 most popular funds in the year, with BlackRock passive funds occupying the top three slots with a US equity tracker, a UK equity tracker and a World ESG equity tracker. Indeed, there are three sustainable trackers in the list of funds with the biggest inflows, which are targeted at pensions. Parekh says the popularity of these funds in 2020 was due to “a combination of increased investor awareness of sustainability issues as well as moves by pension companies to invest more sustainably”.

The fund with the biggest outflows last year was State Street AUT UK Screened Index Equity, which suffered £5 billion net withdrawals, followed by Negative-rated Invesco Global Targeted Returns, with outflows of £3 billion. Invesco as a group suffered the greatest inflows for the year, with total outflows of £7.8 billion across its funds. 

BlackRock’s £23 billion of net inflows was significantly ahead of the next fund group, Link, which brought in just under £6.5 billion of flows. BlackRock passive rival Vanguard took the number four slot, but active manager Baillie Gifford also had a strong year as investors poured money into growth funds, especially as the global market recovery took hold. Other notable active managers in the top 10 list of inflows include JPMorgan, Liontrust and Fidelity.

Top and Bottom Fund Groups by Flows

Money Market Suffers in December

December saw a continuation of many of 2020’s trends, with another positive month of overall inflows (£7.33 billion).

Fixed-income and allocation funds remained popular, while property and alternative funds remained out of favour. Within the equity category, income funds saw outflows despite a recovery in fortunes for these funds in October and November.

Money market funds suffered a rare outflow of £252 million, despite attracting nearly £3 billion for the year as a whole. And the BlackRock ACS UK Equity Tracker, which saw some of the biggest inflows for funds in 2020, suffered the biggest outflows in December.

Equity funds appeared to have a strong final lap, but the figures were flattered by large inflow of £2.3 billion into an ACCESS branded pension fund. “The local government pension scheme has now launched 20 funds in the last two years and as of the end of December 2020, they contained £18.7 billion,” says Parekh.

At a group level, Baillie Gifford saw the biggest flows in December, followed by Aviva. M&G saw £817 million of outflows in December alone, its highest net outflow since March 2019, with a large chunk of that accounted for by M&G Global Dividend, which has a Morningstar Analyst Rating of Bronze.

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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James Gard  is content editor for Morningstar.co.uk