Fund Flows 2020 Round-Up

VIDEO: Where did investors put their money in 2020? Morningstar analyst Bhavik Parekh has the details 

Holly Black 26 January, 2021 | 10:24AM
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Holly Black: Welcome to Morningstar. I'm Holly Black. With me is Bhavik Parekh. He is a manager research analyst at Morningstar. Hello.

Bhavik Parekh: Hello, Holly.

Black: So, Bhavik, you've been looking at all the fund flows, where the money was going in 2020. So, what were some of the key trends for the year?

Parekh: Yeah. So, there were a few key trends in 2020 and of course, asset flows were really dominated by the effects of the coronavirus pandemic. The financial markets were very volatile at the beginning of the year and we saw that big drop-off in equity markets in March. So, at that point, we saw equity investors that they saw that big drop-off and they invested lots of money there looking to take advantage of relatively cheaper markets. But in the case of fixed income, we saw that there was a particularly stressful time, and we saw lots of outflows, record outflows in fact, for fixed income funds in March. But there was a reversal of that through the year where fixed income funds then saw inflows, and by the end of the year, fixed income funds had actually finished the year with net inflow. So, they did recover from their record outflows earlier in the year. In the case of equity funds then, they did continue to see inflows after April, but on a much smaller scale. So, there was a little bit of reversal in the trend from March and April in that regard.

Then the other key trend that we saw in 2020 was the popularity of sustainable vehicles. So, out of the £35 billion that was added in 2020, approximately a third of that went into sustainable funds. Now, that's quite remarkable when you consider that the assets that sustainable funds represent, at least at the beginning of the year, was relatively small. So, it really shows that sustainable funds are extremely popular at the moment, and that's for a number of reasons, including more options available, more investor awareness and more funds now have a long track record, so investors are more comfortable investing in them.

Black: And a key split we've seen for a number of years really is that of growth funds versus value funds. And in 2020, was it still growth all the way?

Parekh: Yes, there was a little bit of that value rotation that we saw in November, and with that we did see some value funds see some inflows, but that was it really unfortunately for value funds. Growth funds outperformed value more than ever in 2020 and that was reflected in the asset flows. Generally, we see investors, they like to invest in strategies that have performed well or are performing well, and the difference in growth and value obviously is no different there. So, categories and regions that generally have a bit more of a growth bias, let's say, the U.S. and global categories, they saw more inflows in 2020, whereas those, for example, the U.S. value category, the global value category as well as markets which have a bit more of a value of bias, for example, our market, the U.K. and European markets, those categories generally saw outflows. Similarly, within categories, those funds that have a bit more of a value bias, those had outflows and those that have a bit more of a growth bias, they saw inflows. So, it was a pretty obvious trend throughout the year.

Black: And one trend that really ramped up was the popularity of passive funds over active funds. We saw assets hit a milestone in the year. So, what's driving that?

Parekh: Yes, you might expect active funds to see inflows in such a volatile period, but there's a few good reasons why passives saw over 90% of the net inflows in 2020. One, at the beginning of the year, in the case of equity, there was that big drop-off as I mentioned, and investors plowed into those passive vehicles. Probably investors just looking for exposure to the market. So, in hope at the time of a V-shaped recovery they could see their investments increase by 20%, 30% in a very short period. Or at least, that was the hope at the time. But throughout the remainder of the year, passive vehicles still saw lots of inflows, especially when compared to the active equity, for example. I think that just is a continuation of the trend that we've seen. Investors are still choosing passive vehicles for their long-term investments and apparently, a global pandemic isn't going to change that.

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


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Holly Black  is Senior Editor,