UK Sustainable Fund Flows Surge

Assets in one sustainable fund grew by 60% in February alone, but UK funds continue to see outflows, especially equity income offerings

James Gard 16 March, 2021 | 12:34AM
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February was a volatile month for global stock and bond markets, but UK fund investors remained on board, committing nearly £2 billion in net flows last month, according to the latest Morningstar data.

Recent trends continued, with allocation and fixed-income funds in favour and UK equity funds and money market funds out. It was also another strong month for sustainable funds, with £2.5 billion added in February, a large inflow considering that these funds only make up 7% of the fund universe.

In terms of broad categories, allocation funds attracted the most inflows in the month, with £1.4 billion of net new money, followed by fixed income with just over £1 billion. Equity funds brought in a more modest £164 million, reversing January’s outflows. Over a year, though, equity funds have attracted the most inflows of all categories, with more than £21 billion of new money, compared with £15 billion for allocation funds and nearly £9 billion for fixed-income funds.

Excluding money market funds, alternative funds saw the biggest outflows in the month at £407 million, and this category is around £7.7 billion down for the year. Property funds, many of which have re-opened to investors this year, saw a £170 million outflow in February, and have shed nearly £2 billion over the year. “In February, having reopened on the 24th, Janus Henderson UK Property PAIF saw the highest net outflows. Some £83 million left the fund, and that represented an 18.5% reduction in size, excluding performance,” says Morningstar analyst Bhavik Parekh.

UK sustainable funds chart

Fixed Income Figures Flattered

Within specific Morningstar categories, GBP Government Bond just beat the GBP Moderately Adventurous Allocation category to the top spot, with £794 million of inflows, despite a turbulent month for the asset class.

But this wave of money going into UK Government bond funds was highly concentrated, says Parekh. “At first glance, fixed-income funds had another good month, but it was actually only a handful of funds that saw net inflows, including a tracker which took in almost 60% of the net amount,” he says. The ASI Global Government Bond Tracker received £585 million of that £794 million, helped by flows within the ASI MyFolio fund-of-funds range. No other fixed-income funds made it into the top five most popular funds by flows.

Sustainable funds continued to attract investor flows too, and the relevant Morningstar category Sector Equity Ecology was the fourth most popular in February. Two sustainable funds made it into the top five funds by inflows, the Developed World Sustainable Equity Index with £333 million of inflows and the Neutral-rated Ninety One Global Environment Fund with £300 million of net new money – this fund grew by 60% in February alone. “Sector Equity Ecology has grown rapidly in the past six months as its strategies, which are all classed as sustainable investments, have been strongly in favour. The main driver of this over the period has been [BlackRock] ACS Climate Transition World Equity, which saw a further £137 million added to it in February,” says Parekh.

UK funds inflows and outflows

UK in the Doldrums

But UK funds remained out of favour with investors, particularly those in the UK equity income, large-cap and mid-cap categories. Parekh says active funds bore the brunt of these withdrawals, with more than £2 billion of outflows in the month; Silver-rated Threadneedle Equity Income fund saw outflows of £233 million and Ninety One UK Alpha saw the highest outflows of any equity fund in February at £362 million. 

UK funds make up much of the bottom five in terms of flows, with ASI Global Absolute Return Strategies out in front. Some of the biggest UK funds made it into the bottom five for the month including the £22 billion Fundsmith Equity and £11 billion iShares UK Equity Index Fund - although given their size, outflows for these Gold-rated funds made up a very small percentage of their overall assets.

Top fund groups by flows

Baillie Gifford Leapfrogs Vanguard

The change in sentiment towards value stocks has not stopped growth-orientated fund house Baillie Gifford achieving a record month for fund flows, with Baillie Gifford Pacific, Baillie Gifford Managed, Baillie Gifford Positive Change among the most popular products.

The Scottish fund house brought in £1.4 billion in February, 10 times that of BlackRock and double the inflows received by passive giant Vanguard. February’s inflows mean Baillie Gifford overtakes Vanguard over the year in terms of flows (£6.4 billion versus £5.1 billion), but BlackRock towers over other fund groups in the period with £22 billion in inflows. Invesco saw the biggest outflows in the month of £380 million, and has seen £7 billion of outflows over the year.

 

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James Gard  is content editor for Morningstar.co.uk