May was a volatile month for global stock markets so it was no surprise to see UK bonds again receiving substantial inflows from investors in Morningstar's monthly flow data. But the numbers also threw up two unexpected results: given the drama surrounding Woodford Equity Income, which was suspended in early June, the fund did not suffer the biggest outflows in May.
According to Morningstar Direct data, the flagship Woodford fund suffered £202 million in outflows in May, the seventh largest drawdowni in the month. Overall, UK funds saw net outflows, but, as Morningstar analyst Bhavik Parekh notes, the total outflow of £476 million from the sector in the month is much smaller than the £5.8 billion investors withdrew in January or the £5.4 billion in March.
The Aviva Investors Developed World ex Equity fund suffered the biggest outflows of nearly £2 billion. The Neutral-rated SLI Global Absolute Return fund, meanwhile, saw outflows of £485 million in May. The fund has suffered large withdrawals amid underperformance in recent years.
Morningstar analyst Francesco Paganelli says the recent change of manager at the fund “creates uncertainty in both the team structure and its ability to efficiently execute the process over the long term” and that the loss of high-level members of the investment team has been a concern. A new manager, Aymeric Forest, took over e thfund in February 2019. On an annualised basis, the fund has gained a measly 0.56% in five years and 0.44% over three years.
At the other end of the scale, the four-star rated AI North American Equity Index fund grabbed £1.3 billion of new investment, way ahead of the next most popular fund, the money market Federated Short-Term Sterling Prime, which brought in £442 million. "The Federated Short-Term Sterling Prime fund has been one of the main drivers of the growth in money market funds in recent months," Parekh says, noting that the fund size is now close to £5 billion.
ETFs Attract Cash
In terms of Morningstar-rated funds, the Vanguard FTSE UK All Share Index was May’s third most popular fund, with £346 million of net new money. The four-star fund also has a Silver rating from Morningstar analysts. Gold-rated Fundsmith Equity was the seventh biggest recipient of investor money with £268 million of new investments in the month.
Despite the ongoing Brexit crisis and political uncertainty, investors backed the UK All Companies sector above any other, with £372 million of inflows. Out-of-favour UK equity income funds also saw a rebound with £135 million of new investor money.
The least popular sector was Targeted Absolute Return with more than £1 billion of outflows. Investors pulled £302 million out of Global Emerging Markets and £252 million out of Japan. Other categories spurned by investors include European Smaller Companies, UK Smaller Companies, China, and Europe excluding UK.
Parekh says the strong US dollar has made emerging market funds unpopular. The funds, especially those focused on China, performed well in the first quarter after a dire end to 2018.
Among Morningstar fund categories, Global Large-Cap Growth Equity was boosted by the launch of the Hargreaves Lansdown Select Global Growth Shares fund, which brought in £318 million in its first month. But Parekh notes that “competing against the likes of Gold-rated Fundsmith Equity, Silver-rated Lindsell Train Global Equity, and a number of Baillie Gifford funds – or even passive funds – will be difficult” for the new offering.
BlackRock saw the biggest inflows among fund families in May, with £1.1 billion of net new money while Vanguard, another strong name in the passive sector, attracted £678 million.
