Equity funds saw their first month of net inflows for more than a year in November, enticing investors back after a sustained period of negative sentiment. Investors poured £708 million into equity funds in the month, latest data from Morningstar Direct reveals. It's a sharp turnaround from recent trends, which have seen investors pull £16.2 billion out of equity funds over the past 12 months.
November was an interesting month for the fund universe as a whole, which was struck by a sharp change in investor sentiment. A widely predicted Conservative party win in the UK General Election is thought to have sparked the wave of optimism for UK investments.
“Investors finally started putting some of their money to work in higher-risk asset classes in November,” says Morningstar investment analyst Bhavik Parekh. This, alongside outflows of £380 million outflow from money market funds - which have been among the most popular choice in recent months - suggests that "investors are turning more bullish”, he says.
In each of the previous 12 months, equity funds hadve suffered net outflows as nervous investors have looked to shore up their capital. Some £1 billion has been pulled from equity funds over the past year. However, Parekh says activity from institutional investors such as big pension funds has had a significant impact the figures.
Fixed Income Still in Favour
Fixed Income continued to be en vogue, attracting £611 million but it will be no surprise to many investors that property funds suffered heavy outflows in the month. The property sector has seen consistent redemptions from investors throughout the year and November was no exception as investors pulled £219 million out of the asset class.
The heavy outflows prompted M&G to suspend trading in its M&G Property Portfolio fund earlier this month to avoid being forced into a firesale of its assets. Parekh says: "Morningstar continues to hold the view that the daily dealing structure is not a suitable one for these types of investments given the illiquid nature of direct property."
Alternative investments saw their highest ever monthly outflow at £2.1 billion, over half of which came out of the Neutral-Rated ASI Global Absolute Return Strategies alone. Investors have been increasingly questioning the worthiness of Absolute Return funds, many of which have missed their own performance targets or failed to perform in times of volatility.
The Neutral-Rated ASI fund has delivered annualised returns of 0.75% over three years. At the start of 2019, the group appointed a new head of multi-asset investing who, it is hoped, will help turn performance around. But Morningstar analyst Francesco Pagnanelli has limited conviction in the fund at the moment: "We are still in the early days of a revised investment process."
Outflows by Fund Group
At a firm level, Schroders saw the largest outflows in the month, at about £1.2 billion, half of which was due to the liquidation of its £617 million Schroder Reliance Mutual Balanced fund.
Meanwhile, the JPM Multi-Asset Moderate fund attracted £629 million of assets in the month, just two months after it was launched in September. The fund invests in a combination of asset classes including equities, fixed income, property and cash; its medium-risk profile seems to have struck a chord with investors looking for all-weather solutions.
Invesco endured a third consecutive month of outflows, with £956 million withdrawn from its fund. Accounting for much of this was the Invesco High Income, which saw an outflow of £318 million. The fund, run by Neil Woodford protégé Mark Barnett, was downgraded to Neutral by Morningstar analysts alongside his Invesco Income fund in November. The move was prompted by concerns about the fund’s high exposure to smaller and illiquid companies, as well an increasing number of stock-selection issues, which have caused analysts to have a lower level of conviction in the fund. In December the fund manager was also sacked from running the Edinburgh Investment Trust after three years of underperformance.
Also among the most popular funds of the month are two passive options - Blackrock ACS World ex UK Equity Tracker fund and the Silver-Rated Vanguard FTSE UK All Share Index Unit Trust, which attracted £272 million and £169 million of assets in the month respectively.
The funds have delivered 24% and 19.6% year to date respectively, with annual charges of just 0.01% and 0.06%. It is unsurprising then that passive alternatives continue to grow in popularity with investors, leaving behind their active counterparts - with inflows of £2 billion in November, compared to £3.8 billion of outflows from active funds.
