Morningstar
RecommendedMorningstar AwardsWhats New IconETFs Whats New IconIncome Week Whats New IconThematic Investing Whats New IconSign Up to Our Newsletters Open Window Icon
Fund Research & Insights

Investors Back Equities over Bonds in Sluggish February

Fixed income funds reach the highest outflows since the start of the pandemic in another slow month for the UK fund industry

Sunniva Kolostyak 16 March, 2022 | 10:17AM
Facebook Twitter LinkedIn
Font-Size

Up and Down Arrows

In January, price corrections drove people away from equities and towards fixed income, but the trend has since reversed.

Overall, Morningstar data reveals £751 million was added to UK domiciled open-end funds in February, which is up from £443 million in January. However, most of the inflows went into lower-risk money market funds, and if you exclude those, funds only attracted £159 million (compared to £143 million in January).

So fund flows remain low, but investors have moved their attention away from fixed income funds, which saw their highest outflows since March 2020, to equities.

Fixed income lost nearly a billion (£912 million) last month, after attracting £17 billion over the past 12 months. Morningstar’s manager research analyst Bhavik Parekh notes these funds generally see very small outflows. The majority this month came from investment-grade, high-yield, and/or strategic and dynamic bond funds.

“Cooling markets in 2022 led by central-bank tightening, inflation owing to a normalising world economy, and concerns about the Russia-Ukraine conflict meant investor sentiment was generally low,” Parekh says.

“Strong inflows into money market funds are an indication of the general unease of investors, given their lower risk profile.”

Equity funds attracted £1.5 billion last month, meanwhile, but that was largely due to lump sums into a trio of institutional pension funds: BlackRock's ACS Climate Transition World Equity, LF Access Global Equity–Macquarie, and FP Brunel's Global Sustainable Equity. If it weren’t for those three, total outflows for February would have reached £2.2 billion.

Overall, passive vehicles saw outflows and active ones saw inflows – largely due to the three previously mentioned equity funds.

Sustainable funds continued to bask in investor popularity, despite the recent underperformance of these so far in 2022 owing to their relatively low weights in the energy and natural resources sectors.

The sector equity ecology category had the second highest inflows this month, and it is a heavily featured category in the top five for inflows on a monthly basis. The biggest fund in the category, BlackRock's Climate Transition strategy, attracted £1.2 billion, but a new UBS fund, UBS Global Equity Climate Transition, also attracted £302 million.

Digging further into category popularity, global large-cap growth and blend did well, again because of the large pension funds. If it weren’t for these, the growth category would have had large net redemptions. The main loser in the category was UK’s largest fund, Fundsmith Equity, which after its worst month of performance in January saw £231 million of outflows.

Despite performing well on a relative basis to other geographies in 2021, UK equities have continued to see heavy outflows. Three UK equity categories were in the bottom five for net flows, with large-caps losing £1.2 billion.

Vanguard had its worst month on record for UK-domiciled funds. The fund group has had remarkably consistent inflows over the past 10 years, but there was a big outflow in February, as detailed in our chart. According to our analysts, the large net redemptions from its FTSE All-Share tracker were the main cause of this, but the US equivalent and Vanguard UK Long Duration Gilt Index also saw reasonably large net outflows.

Fidelity did reasonably well due to a single client investing a significant amount into it Fidelity European strategy. Meanwhile, Baillie Gifford experienced net redemptions for a third consecutive month, the first time that has happened since 2015.

TAGS

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.

Facebook Twitter LinkedIn
Font-Size

About Author

Sunniva Kolostyak

Sunniva Kolostyak  is data journalist for Morningstar.co.uk

© Copyright 2024 Morningstar, Inc. All rights reserved.

Terms of Use        Privacy Policy        Modern Slavery Statement        Cookie Settings        Disclosures

The Morningstar Star Rating for Stocks is assigned based on an analyst's estimate of a stocks fair value. It is projection/opinion and not a statement of fact. Morningstar assigns star ratings based on an analyst’s estimate of a stock's fair value. Four components drive the Star Rating: (1) our assessment of the firm’s economic moat, (2) our estimate of the stock’s fair value, (3) our uncertainty around that fair value estimate and (4) the current market price. This process culminates in a single-point star rating that is updated daily. A 5-star represents a belief that the stock is a good value at its current price; a 1-star stock isn't. If our base-case assumptions are true the market price will converge on our fair value estimate over time, generally within three years. Investments in securities are subject to market and other risks. Past performance of a security may or may not be sustained in future and is no indication of future performance. For detail information about the Morningstar Star Rating for Stocks, please visit here

Quantitative Fair Value Estimate represents Morningstar’s estimate of the per share dollar amount that a company’s equity is worth today. The Quantitative Fair Value Estimate is based on a statistical model derived from the Fair Value Estimate Morningstar’s equity analysts assign to companies which includes a financial forecast of the company. The Quantitative Fair Value Estimate is calculated daily. It is a projection/opinion and not a statement of fact. Investments in securities are subject to market and other risks. Past performance of a security may or may not be sustained in future and is no indication of future performance. For detail information about the Quantiative Fair Value Estimate, please visit here

The Morningstar Medalist Rating is the summary expression of Morningstar’s forward-looking analysis of investment strategies as offered via specific vehicles using a rating scale of Gold, Silver, Bronze, Neutral, and Negative. The Medalist Ratings indicate which investments Morningstar believes are likely to outperform a relevant index or peer group average on a risk-adjusted basis over time. Investment products are evaluated on three key pillars (People, Parent, and Process) which, when coupled with a fee assessment, forms the basis for Morningstar’s conviction in those products’ investment merits and determines the Medalist Rating they’re assigned. Pillar ratings take the form of Low, Below Average, Average, Above Average, and High. Pillars may be evaluated via an analyst’s qualitative assessment (either directly to a vehicle the analyst covers or indirectly when the pillar ratings of a covered vehicle are mapped to a related uncovered vehicle) or using algorithmic techniques. Vehicles are sorted by their expected performance into rating groups defined by their Morningstar Category and their active or passive status. When analysts directly cover a vehicle, they assign the three pillar ratings based on their qualitative assessment, subject to the oversight of the Analyst Rating Committee, and monitor and reevaluate them at least every 14 months. When the vehicles are covered either indirectly by analysts or by algorithm, the ratings are assigned monthly. For more detailed information about these ratings, including their methodology, please go to here

The Morningstar Medalist Ratings are not statements of fact, nor are they credit or risk ratings. The Morningstar Medalist Rating (i) should not be used as the sole basis in evaluating an investment product, (ii) involves unknown risks and uncertainties which may cause expectations not to occur or to differ significantly from what was expected, (iii) are not guaranteed to be based on complete or accurate assumptions or models when determined algorithmically, (iv) involve the risk that the return target will not be met due to such things as unforeseen changes in changes in management, technology, economic development, interest rate development, operating and/or material costs, competitive pressure, supervisory law, exchange rate, tax rates, exchange rate changes, and/or changes in political and social conditions, and (v) should not be considered an offer or solicitation to buy or sell the investment product. A change in the fundamental factors underlying the Morningstar Medalist Rating can mean that the rating is subsequently no longer accurate.

For information on the historical Morningstar Medalist Rating for any managed investment Morningstar covers, please contact your local Morningstar office.

For more detailed information about conflicts of interest, including EU MAR disclosures, please see the “Morningstar Medalist Rating Analyst Conflict of Interest & Other Disclosures for EMEA”here

Select Your Site Edition To make sure the site is relevant to you, we need to know if you’re an individual investor or a financial professional.