Equity Funds Hit by Outflows in June

Fund investors flee risk.

Christopher J. Traulsen, CFA 29 July, 2008 | 9:57AM
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The monthly statistical release from fund the IMA trade group shows that investors pulled money out of riskier asset classes in June.

Fund Flows: The Big Picture
In all, investors yanked £364 million out of funds during the month. Retail investors put a net £139.5 million into funds, but this was more than offset by a net outflow of £503.5 from institutions. The June outflow marks a turn from May, when funds saw a small net inflow of £90 million.

Fund Flows: Equity Funds Lose Assets
The pattern is a familiar one in down markets. Ten of the sixteen IMA Equity sectors posted net outflows, including all three UK equity sectors, with UK All Compan

ies bleeding £250 million. The biggest net inflows were in the Specialist, Global Growth, and North America sectors. Property funds, however, had net retail outflows of £14 million. In other words, cut back on risk.

Fund Flows: Bond, Mixed-Asset Funds Popular
Instead, they favoured less volatile bond- and mixed-asset funds. Bond funds saw a net inflow of £463 million in June. Almost all of that (£450 million) came from institutions, however. Retail investors favoured mixed asset funds more, putting a net £149 million into Active Managed, Cautious Managed, and Balanced Managed funds.

Fund Flows: Absolute Return Funds a Big Hit
Absolute Return funds proved particularly popular as investors tried to combat market volatility. The sector posted net sales of £271 million in the month, with nearly all of that coming from retail investors. The trend is somewhat worrying as few of these funds have proven themselves over any meaningful period of time, and given the structure of their portfolios, their risks can be hard to quantify.

UK domiciled equity funds under management now stand at 67.8% of total UK domiciled funds under management, their lowest level since 1998. The £288 million in equity funds in June represents a substantial decrease form the £334 million peak hit in the second quarter of 2007. The pattern can be a dangerous one--it appears investors bought all the way to the peak, and are selling on the way down. If this is the case, investors may find themselves underexposed to equities when the market turns, which is usually when most of the money is made.

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.

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About Author

Christopher J. Traulsen, CFA  is director of fund research, Europe and Asia, Morningstar.

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