Fixed Income Resilient but Equities see Outflows in February

UK Investors withdrew over £1.5 billion from equity funds over the past month

Sunniva Kolostyak 22 March, 2023 | 9:38AM
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Asset flow

A total of £2.36 billion flew out of UK-domiciled funds in February, but it’s not all bad news for funds as some categories remained attractive to investors.

According to Morningstar data, flows into fixed income funds remained resilient in February 2023, and allocation funds might be in for a resurgence after being largely unpopular over the past year.

Overall, trends were not dissimilar from what we’ve seen over the past few months. This is with the exception of money market funds – we usually exclude these vehicles from analysis as they are solutions used by institutions for cash management and liquidity.

These funds did, however, see the largest change: the £1.76 billion February outflows almost completely offset the £2 billion inflows in January.

When excluded, the overall UK fund market saw £602 million in net withdrawals. Equity funds were the main perpetrator here, accounting for £1.54 billion in outflows, but the smaller alternatives and property categories were also in negative territory.

Investors did, however, continue to put their money into fixed income categories, and that meant it attracted £903 million, down from £1.58 billion in January.

One of the biggest turnarounds was the interest in allocation funds. The category saw almost £1 billion in withdrawals last month, after a year of (at-best) lukewarm interest.

In February the category saw £145 million worth of subscriptions – but whether interest will go back to 2021 highs – where investors gladly invested £1 billion into these funds monthly – is yet unclear.

Looking at sustainable strategies, funds with a sustainability mandate attracted investments of half a billion, while those without it bled £3 billion. When adding the flows together with January numbers, sustainable strategies remain more popular than non-sustainable funds, with £1.1 billion in inflows for the former, but last month’s inflows into non-sustainable strategies mean they’ve only seen redemptions worth £1.7 billion so far in aggregate.

Passive funds are currently winning their popularity contest against active funds: £1.3 billion versus negative £3.7 billion, respectively. As such, passive offerings dominated the list of funds with the top inflows (seen at the bottom of this article), with HSBCs FTSE All-World Index and European Index leading the way.

Which Morningstar categories were behind these figures? On the inflow side, it was Global Large-Cap Blend Equity and US Large-Cap Blend Equity funds that received reasonable inflows for the year to date: £587 million and £341 million, respectively. While GBP Corporate Bond funds received £72 million in inflows and made the top five list, this is a more muted number. In January, the category saw a five-year high, with £876 million.

At the other end of the spectrum, it’s no surprise to find money markets at the top after seeing the aggregate numbers above. The category is followed by UK Large-Cap Equity, a stalwart now at the bottom, having seen withdrawals of over £10 billion over the past year, and other UK equity categories that also remain firmly out of favour.

Morningstar’s analyst Jack Fletcher-Price explains that, on the fund house side, it was BlackRock that attracted the most investments, and the bulk of its inflows were to its iShares Index franchise. Overall, investors added £210 million to its UK funds.

Recording its second month of solid inflows, Royal London had the second-highest inflow of the top groups, at £168 million, while Baillie Gifford, Schroders, and Columbia Threadneedle saw continued redemptions (£624 million, £203 million, and £253 million).

Fidelity (£33 million in redemptions) and Vanguard (£139 million in redemptions) suffered a rare month of tandem net outflows.

Overall though, the two previously-mentioned HSBC index funds were the most popular in February, but we also see one popular passive vehicle at the bottom: Vanguard US Equity Index. This £12 billion strategy had withdrawals of £135 million in February.

That said, it was Bronze-rated Trojan Income which had the largest outflow of the month, at £248 million.

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Sunniva Kolostyak

Sunniva Kolostyak  is data journalist for

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