The collapse of Woodford Investmment Management has put off fund investors and hit sales, according to the latest Pridham Report. The quarterly report compares fund groups by sales i.e. the amount retail investors have put into a firm's funds over the period and is a helpful insight into investor sentiment.
Helen Pridham, the report's author, says a further Brexit delay and a General Election in December is likely to see the trend of lower sales continue. Multi-asset funds and passive funds continue to prosper as investors look to avoid volatility in the stock market, while sustainable funds have also seen steady demand.
While many fund firms struggled to increase their sales in the third quarter of the year, two of the largest passive fund providers - BlackRock and Legal & General Investment - were the top managers by net retail sales, at £1.7 billion and £886 million respectively.
Pridham says: "Many investors are waiting for greater certainty. Until then lower risk funds are likely to be favoured."
But funds in BlackRock’s active range of funds also saw strong sales, the report notes, including BlackRock European Dynamic, which has a Bronze rating and 5 stars from Morningstar and is up 27% year to date. Morningstar analyst Ronald van Genderen says the fund's manager Alister Hibbert is an experienced and capable manager but there are concerns over the high turnover in the fund management team.
The report chimes with Morningstar monthly flows data, which shows that BlackRock received the highest inflows in October at £626 million, while passive fund options remained popular.
Royal London, which is third in the top 10 list of managers by net sales, saw half of its sales come from its sustainable range, including Royal London Sustainable Diversified and RL Sustainable Leaders.
Sustainability Ratings
Royal London Sustainable Diversified, which is rated Bronze by Morningstar analysts and 5 stars, has returned 19% this year. The fund ranks highly for environmental factors, above average for social and above average for governance, according to the Morningstar Sustainability Rating. Morningstar unveiled upgrades to its sustainable ratings this month that sharpened the focus on ESG factors and improved the comparability of firms across different sectors.
Royal London Sustainable Leaders also has a Bronze Analyst Rating from Morningstar and is rated 5 stars for performance. The fund’s year to date performance is higher than that of the RL Sustainable Diversified fund, at 23%, but both funds have a Sustainability Rating of 5 globes, the highest possible rating.
Liontrust, which took over Neptune this year, also reported strong sales for its sustainable funds, especially Liontrust Sustainable Future Managed, which has a 5 star rating from Morningstar, and is rated 4 globes for sustainability. The fund has returned more than 20% in the year to date.
Both Liontrust and Royal London say that interest in sustainable investing is growing among financial advisers, a trend picked up on in our most recent Good Money Week. Still, as Hortense Bioy, director of sustainability research in Europe for Morningstar, notes, there needs to be a dialogue between advisers and their clients ahead of the decision to invest in sustainable funds.
She says: “When considering how to implement ESG into portfolios, advisers first need to know where their clients stand on the topic. Some may already be knowledgeable and may know exactly what they want. Others may know nothing about sustainable investing and need advice about whether to take this approach at all.”
