Fund Flows: Key Trends for 2022

VIDEO: Investing trends have changed dramatically this year but how is that reflected in what investors buy?

Sunniva Kolostyak 28 July, 2022 | 11:43AM
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Sunniva Kolostyak: Welcome to Morningstar. I'm here with Bhavik Parekh, one of our manager research analysts, and he is here to tell me about where UK investors have been putting their money recently.

So, Bhavik, what are the key trends you've seen in these past six months?

Bhavik Parekh: Yeah. Hi, Sunniva. As many of you will not need reminding, the markets have been very volatile this year. But in the flows, some of the trends from last year have remained. For example, global large cap and the ecology funds have continued to see inflows this year at quite a rate, and UK and Continental Europe equity funds have seen outflows. Perhaps where we've seen the difference, then, is the global equity income category. The funds in there have seen inflows. Their typical area of investing is more on the value side and also in oil and mining sectors, and clearly, those have performed very well this year. So, that for the first time in a while has seen inflows.

Again, where the difference is then is more in the growth side. So, within the U.K., and concerns with Europe equity funds, it's the growth funds that have seen outflows, and the biggest fund in the UK market, which is Fundsmith Equity, that has quite a growth bias as well, and that has had very big outflows, over a billion so far this year. But it's still a very big fund. So, we shouldn't be concerned about that at the moment.

Kolostyak: So, quite a lot of change for growth versus value then. But what about if we look at the relationship between active and passive funds? What's changed there?

Parekh: So, over the last 12 to 18 months, we've actually seen active funds pull in more money than passive funds. Part of the reason for that is sustainable funds and multi-asset funds being quite popular, and they are nearly always active vehicles. And passive funds have still had the inflows, however. But what we've seen this year, especially over the last couple of months, is that active funds have really suffered. They did have inflows towards the beginning of the year, but the last couple of months we've had lots of outflows, and active funds have really bore the brunt of those undoing the inflows that we've seen previously. So, if you'd asked me this question two months ago, I'd have said active, great, but now we're kind of seeing a reversal back to what we had a few years ago where active funds had outflows.

Kolostyak: So, like you said, equities have had quite a tough year and that's obviously hit some fund houses more than others. How have investors reacted to that?

Parekh: So, some fund houses clearly have suffered more than others, the most of which is Baillie Gifford. That fund house typically has growth style funds. Particularly on the equity side, some of them are quite high growth as well. So, performance of those funds has been particularly poor, in some cases, falling 40% so far this year. So, investors clearly are pulling out their money from there. Nearly £5 billion so far this year from the retail side at least. And we've seen retail assets over the past 12 months fall from around 66 billion to 44 billion as a result of those outflows, but also investment performance, quite a significant drop off there.

One thing we've noted as well this year is BlackRock, at least on the U.K. retail side, we've seen outflows on consecutive months, something we've not seen in quite a few years. So, that's been quite a notable development there. But it hasn't been all doom and gloom. For example, Fidelity, they have had inflows this year. Their Global Dividend strategy going back to the Global Equity Income category reasons, that has seen inflows as has the European Fund and some of their index funds have actually seen inflows as well. So, mixed fortunes for fund groups this year.

Kolostyak: Bhavik, thank you very much. For Morningstar, I'm Sunniva Kolostyak.

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Sunniva Kolostyak  is data journalist for Morningstar.co.uk