There’s no respite in sight for equity funds. Last month, investors withdrew over £1 billion from the category, with UK equity categories leading the way.
According to the most recent Morningstar data, equity outflows are persisting and these funds are yet to see net inflows this year. In our first quarter review last month, we noted that over £2 billion had been withdrawn. That’s now up to £3.37 billion for equity strategies.
But the month hasn’t been all bad. Fixed income and money market funds both see inflows – although they are the only two categories to do so. It’s also the first month of aggregate net inflows into UK open ended funds since January, and passive strategies increase the margin of popularity between themselves and their active counterparts.
Smaller fund categories did continue seeing outflows, however. Allocation funds saw a moderate £123 million in redemptions, bringing the yearly total to £1.33 billion. Property strategies' outflows remain marginal but consistent at £159 million in April and £365 million so far in 2023 overall.
That said, the grand total for April is positive. It’s mainly fixed income and money market funds that have contributed positively to overall fund flow figures this year. This month they were also responsible for ensuring UK funds saw net £815 million added. The year as a whole is still negative with £2.36 billion in outflows, but April is the first month since January with positive overall figures.
The Morningstar category GBP Corporate Bonds has proved to be the most popular and a big driver for the fixed income inflows. It was also the only category with inflows above the £1 billion mark, with £1.18 billion. Gilts were also popular – £420 million went into GBP Government Bond funds in April.
Global and US Large-Cap Blend Equity categories were also popular – both feature in the top five with strong monthly and year-to-date inflows. However, this has not been enough to save the equity category from net outflows. Four out of the five bottom categories are UK equity strategies. The fifth is UK allocation.
UK Large-Cap Equity saw withdrawals worth £888 million in April, bringing the yearly outflow figure above the £3 billion mark. The category is then followed by UK Equity Income with a more moderate £320 million and UK Flex-Cap Equity at £271 million. The latter two both have year-to-date outflows above £1 billion.
UK income categories have struggled with popularity of late, as Morningstar’s investment research analyst Michael Born explained in a recent video. With growth leading the way in the past decade, and the UK out of favour post-Brexit, investors have looked elsewhere.
In terms of valuations, Born said some of the stocks these funds invest in are looking "exceptionally cheap". But the outlook remains volatile. "There are some valid risks that might cause some of these pricings […], but certainly they look optically cheap. On that basis, I think they do look fairly attractive."
Across the different fund houses, BlackRock, Vanguard, and Baillie Gifford see net inflows, while Fidelity, abrdn, Schroders, and Columbia Threadneedle see outflows.
The biggest fund of the month for inflows was Baillie Gifford Investment Grade Bond fund at £778 million. This was followed by two of BlackRock’s iShares funds, both with subscriptions around £280 million.
Passive funds continue to be popular. Along with the iShares range, we find Vanguard’s UK All Share in the top five, attracting £244 million. Overall, £2 billion was added to passive strategies in April, while active funds saw £1.19 billion withdrawn.
With these flows, Morningstar’s associate manager research analyst Jack Fletcher-Price points out the gulf between active and passive has surpassed £15 billion this year. Passive funds now stand at £6.34 billion in net inflows and active at £9.16 billion in net outflows.
Finally, the most unpopular fund was a passive strategy too: Gold-rated iShares UK Equity Index Fund, with redemptions worth £341 million this month and £783 million this year.
