Investors Turn Cautious as Markets Hit Highs

Despite markets hitting record highs in April, muted inflows into equity funds suggests investor are taking a cautious approach

James Gard 17 May, 2021 | 11:31AM
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UK funds attracted nearly £4 billion in April, according to the latest Morningstar fund flow data, but investors are preferring allocation and fixed income funds over equity funds.

Within the equity space, UK large-cap equity and equity income funds remained out of favour, although the recent strong performance of value funds attracted investor interest. A Royal London sustainable tracker was the most popular fund by inflows, capping another strong month for the group.

Global Category fund flows

April was a strong month for stock and bond markets and US benchmarks in particular hit record highs. But despite that, flows into equity fund were down sharply from the previous month. Inflation concerns and the loss of momentum among previously hot growth areas like tech and China suggest investors are taking a more cautious approach.

The overall level of inflows was similar to March at around £4 billion, but just £305 million of this went into equity funds, down from the £1.7 billion the prvious month. This means that allocation and fixed income funds, which received the lion’s share of inflows in April, have overtaken equity funds as the vehicle of choice for investors. With nearly £22 billion of inflows for the year, fixed income is now the most popular category, ahead of allocation with nearly £19 billion equity funds with just over £17 billion.

Alternative funds continue to see outflows and remain the least popular category for the year, shedding £391 million in April alone. Outflows for the past 12 months now total £5.9 billion. Property funds, many of which have re-opened this year, allowing investors to sell their units, saw £66 million of outflows last month, adding to a tally of more than £2 billion withdrawn in the year to the end of April. 

Morningstar category fund flows

Looking at Morningstar categories, GBP Moderately Adventurous Allocation was the most popular in April and over the year, bringing in more than £1 billion last month and just over £8 billion for the year. Flows into the category were relatively concentrated though: Baillie Gifford Managed accounted for 40% of the flows into this category last month. This fund is rated Gold under the Morningstar Quantitative Rating (MQR) for funds, and has seen only one month of net outflows in the last three years.

The Global Corporate Bond – GBP Hedged category remains in second place for the year, but was pushed into third in April by a strong month for Global Emerging Markets Equity, which attracted £789 million of new money. 

The FTSE 100 briefly broke through 7,000 points in April and the UK's value style has come back into fashion, but UK Large-Cap Equity funds remain deeply out of favour. Outflows for this Morningstar category are approaching £10 billion for the year and reached £742 million in April, second only to Europe ex-UK Equity.

Fund flows by asset manager

Morningstar analyst Bhavik Parekh says redemptions from active funds explain April’s drop in the UK, with one notable exception. BlackRock ACS UK Equity Tracker, which has a MQR of Gold, saw £411 million of outflows in April - the second highest level of outflows in the month. But this strategy has attacted nearly £3 billion of inflows over the year, and still has a chunky £12 billion of assets.

The Royal London Emerging Markets ESG Leaders tracker was the most popular fund in April £717 million of inflows. This fund, which is one of the only ESG-focused emerging market trackers available to UK investors, has an MQR of Gold and is held by a number of Royal London funds, including its Global Balanced pension fund.

Royal London ESG fund assets

Royal London saw the most inflows of any large fund group in April bringing in £1.1 billion, ahead of Schroders with £814 million. Over the year, however, BlackRock’s £21 billion of inflows puts it way ahead of any asset manager, with growth-focused manager Baillie Gifford the nearest challenger with more than £7 billion in inflows.

“Royal London’s sustainable range of vehicles continue to garner strong interest,” says Morningstar’s Parekh, although he points out that some of these inflows originate from within the mutually owned pension giant. Exhibit 5 shows the sharp growth in the company’s sustainable/ethical funds since the March 2020 coronavirus crash. Overall, European sustainable fund flows keep hitting new records, as the latest Morningstar data shows.

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

James Gard  is senior editor for Morningstar.co.uk

 

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