Investors withdrew £1.7 billion from equity markets funds in August, whilst pouring £1.2 billion into fixed income funds despite falling yields, Morningstar Direct data reveals. Alternative funds were not far behind equity funds in terms of outflows, with £1.5 billion, while property funds were next, with £283 million withdrawn.
The amount of money invested in fixed income was three times that of July. “The proliferation of bonds with negative yields has not put off investing in fixed income funds,” comments Parekh. Indeed, the demand for bonds is putting increasing pressure on yields, he notes. When demand for bonds increase, their prices rise and the yield falls, sparking fears of a bond bubble. With the European Central Bank and Federal Reserve cutting interest rates this month, this has put further pressure on government bond yields.
In terms of funds, a fund managed by Phoenix is in top spot for inflows, and ASI Global Absolute Return fund saw the biggest outflows, with nearly £1 billion pulled out of GARS, its biggest outflow since December 2018.
August was a difficult month for equity investors due to the uncertainty over the global economy and instability in stock markets. Morningstar analyst Bhavik Parekh says: “Investor sentiment remains low, with no clarity on the outcome of Brexit and wider concerns of a global slowdown”.
Parekh notes that the high demand for fixed-income assets is being seen across the world - European fixed-income funds had their highest monthly inflows since Morningstar began collecting data in 2007.
Money market funds received the fourth biggest inflows by category, with £442 million invested. We have written about the mismatch between the popularity of money market funds and their performance: the top performing funds returned only 0.77% over the past year, with inflation currently at 1.9%.
Top Five Fund Inflows
PUTM Bothwell Global Bond fund, which is managed by Phoenix unit trust managers, attracted the greatest amount of investor money in the month. The fund aims to provide capital growth by outperforming its benchmark, the JPMorgan Global Government Bond Index, by 0.4% to 1% over any given three-year period. It attracted £405 million of net inflows in the month.
The Silver-rated Vanguard FTSE UK All Share Index Unit Trust is in the top five, attracting £289 million. Morningstar analyst Dimitar Boyadzhiev says: “This fund tracks a broad and diversified index that has proved a formidable opponent for active funds to beat.”
The fund has an ongoing charge of only 0.08%, much cheaper than the average active fund in its category, and has a five-year annualised return of almost 6%.
The Bronze-rated BlackRock European Dynamic fund bucked the trend in the Europe ex-UK Large Cap category – it was up 4% on its benchmark and it had the second highest year to date new inflows of any active European equity fund. Only LF Miton European Opportunities had higher inflows in 2019.
Two trackers hold positions four and five, one from Vanguard tracking the FTSE All-Share and one from BlackRock with a global ESG focus. But Parekh notes that this BlackRock fund, as well as a similar offering from State Street, have a an "ESG tilt" and have portfolio sustainability scores only just above the MSCI World: "If investors are happy with a marginally ESG-tilted portfolio, these trackers can serve them well, but for those looking for high sustainability, low carbon exposure, or high ESG-scoring investments, active funds may be the best choice."
Top Five Fund Outflows
The ASI Global Absolute Return Strategies (GARS) saw £993 million redeemed from the fund, its largest outflow since December 2018. The fund, which has a six-year annualised return of only 0.5%, has now dropped out of the 10 largest UK domiciled open-end funds.
Aviva Investors Multi-Strategy Target Return fund saw its largest outflow since inception, with £376 million leaving the fund, which has managed an annualised return of 1.5% since 2014.
Not far behind is Jupiter European, whose manager Alexander Darwall has left to set up alone.
Invesco's Global Targeted Returns Fund comes in at number four. Scottish Widows Corporate Bond Tracker had the fifth-biggest outflows in a month when bonds were largely in favour.
