Some markets might have reached all-time highs over the last 12 months, with megatrends like artificial intelligence (AI) playing a large part in various success stories, but UK investors do not seem like they have had as much confidence.
Over 2023, outflows from UK-domiciled funds reached £25.7 billion. The majority of these assets were withdrawn from equity funds – £18.4 billion to be specific. What's more, equity funds failed to record a single month of net inflows over the year, Morningstar associate analyst Jack Fletcher-Price points out.
UK equity in particular have seen a significant ebb tide over the past few years, and 2023 provided little respite. The four categories UK Large-Cap Equity has had two months of net inflows in two years, and UK Flex-Cap Equity has only had one.
UK Equity Income and UK Small-Cap Equity, meanwhile, have had consistent outflows. These four categories account for about $17 billion (£13.4 billion) of the overall outflows in 2023. Together with 2022, UK equities have suffered outflows of £35 billion.
The outflow figures are significant, but equity remains the largest global broad category by assets, at £646 billion. Fixed income, which is the second largest asset class, stands at £181 billion in comparison. July proved the worst month for funds, with a net outflow of £6.5 billion.
Only one broad category group managed to attract net inflows in 2023, and that was money market funds. The category, which is worth about £31 billion in total, saw £4.1 billion added over the year. Even fixed income saw net outflows of £254 million in a year where "bonds are back" has been a common headline.
In the context of years gone, 2023 proved to be a disappointing one for fund inflows, but aside from the year 2021, a year of significant market activity and investing, investors have largely been withdrawing their money from UK open-ended funds since 2018. Outflows last year still hold second place against 2019, which still holds the title for largest recorded net redemptions. In the years prior, most asset classes tended to attract investments, peaking in 2017 when net inflows surpassed the £50 billion mark.
Beyond asset classes, the year-end aggregate flows show a pronounced trend towards sustainably labelled strategies at the expense of non-sustainably labelled ones.
Just over £1 billion flowed into sustainable strategies over the past 12 months while their counterparts bled £26.9 billion over the same period – however, the inflows were more muted than the previous few years.
As with sustainable funds, we see a similar trend among active and passive strategies, where passives are gaining a larger foothold. Over 2023, investors added £21 billion to passive alternatives like index funds and withdrew £46.8 billion from active funds.
The flow trends from active to passive funds also seem to have impacted the flows figures to and from asset managers; those with passive offerings fared much better than active-only houses. Again, we saw this in 2022, too.
BlackRock's inflows were the largest, at £6.6 billion, bringing the company's total assets in UK-domiciled open-ended funds to £100 billion. Vanguard is second with £2.9 billion added throughout the year, and both Legal & General and HSBC follow close behind with £2.8 billion and £2.6 billion, respectively.
The largest redemptions belong to Baillie Gifford for the second year in a row, at £7.2 billion. But Abrdn has struggled with outflows this year, reaching £5.2 billion in 2023. Only last week, the fund house announced that it plans to cut 500 jobs and kick off a transformation programme to save £150 million by the end of next year. Fidelity International had the third-largest outflows, right behind Abrdn, at £4.8 billion.
