Fund Investors Flee Equities in January

Investors lose interest in US and UK equities in a slow January for fund flows, but bond interest persists

Sunniva Kolostyak 16 February, 2022 | 11:14AM
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Price corrections seem to have spooked investors in January, but interest in allocation and fixed income funds kept the net inflow of assets positive.

Over the past month, only £443 million was invested in UK-domiciled open-end funds. If we exclude money market vehicles, however, that figure drops to £143 million. The most popular categories were by far fixed income and allocation, attracting £816 million and £577 million respectively. That said, allocation funds attracted roughly £1 billion monthly in 2021.

In fixed income, investor interest was mainly focused on sterling, global corporate and inflation-linked bond categories.

The biggest number of the month is £1 billion. That's the size of the outflow from equity funds driven by volatility in the new year. UK, US and European equity funds experienced the biggest outflows. Categories with a growthier style bias – like the US – were hit hard, and this trend accounted for most of the outflows from passive vehicles. BlackRock ACS US Equity Tracker, one of the largest funds in the UK-domiciled open-end universe, had the highest net redemptions at £869 million.

Investors were already unimpressed with UK equities, and had withdrawn £2.6 billion across all the different categories in January. But that trend contradicted performance: the UK has been one of the strongest markets globally since December. Furthermore, almost two-thirds of the outflows from UK equities were from passive vehicles, and from two BlackRock trackers in particular.

In the duel between active and passive vehicles, active came out victorious. Morningstar’s manager research analyst Bhavik Parekh says this was helped by the seemingly unstoppable march of interest in sustainable strategies, which saw another net £3 billion added in January (though this did include £2 billion into a single fund).

For the Morningstar categories, the ecology world continues to do well, but it was mainly due to BlackRock’s ACS Climate Transition World Equity, which saw £2.1 billion added. And speaking of sustainability, Royal London Sustainable World and Liontrust Sustainable Future helped drive the GBP allocation 60-80% equity category into the top five for flows. The category is also the second most popular in the past year.

In terms of fund groups, BlackRock was the most popular choice among investors by quite some way. The company was almost twice as popular as second-place Vanguard, which bagged £350 million of flows to BlackRock's £796 million. 

Meanwhile, Baillie Gifford had a poor month in both performance terms and in flow terms (its worst on record), after finishing 2021 as one of the most popular fund groups. The drop in performance in January alone meant Ballie Gifford's UK-domiciled open-end fund assets shrunk by over 10%, causing group assets to fall below those of Legal & General.

However, it is important take a longer-term view. “The high growth approach used by many of their strategies may not always work, but so far, in nearly all cases long-term performance remains strong," Parekh says.

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Sunniva Kolostyak  is data journalist for Morningstar.co.uk