Bullish investors poured £812 million into funds in January as optimism continued following December's General Election. It's the third consecutive month of net inflows and represents a real turnaround from last year, when outflows totalled £17 billion.
But not all funds have enjoyed the turnaround in investor sentiment and active fund houses were among the worst hit. Mark Barnett's Invesco Income and High Income funds continue to bleed assets, albeit at a slower pace than in recent months. The funds were downgraded by Morningstar analysts in November amid concerns about their high exposure to illiquid smaller companies. The manager, once a protege of Neil Woodford, has also suffered from the fallout of the Woodford Equity Income fund, which is currently being wound up.
Outflows from Mark Barnett's funds totalled £200 million in January, while the Invesco European Equity fund, managed by Stephanie Butcher and Jeffrey Taylor, lost around £90 million of assets. “The fund [Invesco European Equity] has a good long-term track record but its deep value style, which has acted as a strong headwind in recent years, has meant some investors have lost confidence,” explains Parekh. Invesco funds saw total net outflows of £791 million in the month.
M&G was among the fund houses to suffer the greatest outflows in the month, totalling £409 million. Investors took money out of the M&G Optimal Income, M&G Global Dividend and M&G Corporate Bond funds, all of which have a Morningstar Analyst Rating of Silver. Parekh says: "These outflows came despite decent performance in recent years. M&G Recovery, which was recently downgraded to Neutral, is the main exception here as performance has been poor.” M&G sparked concern when it gated its property fund at the end of 2019, and this could have affected investor confidence overall.
But JOHCM UK Equity Income saw the greatest outflows for a single fund in January, bleeding £411 million in assets, even though the Silver-rated fund has beaten its Morningstar category average over three, five and 10 years.
BlackRock Out Ahead
At the other end of the spectrum, the Blackrock ACS World Low Carbon Equity Tracker picked up £702 million of assets in January, making it the most bought fund of the month. As climate warnings become increasingly dire, investors have become more interested in this type of fund. Meanwhile, other sustainable funds attracted £614 billion of assets in the month.
“Even though this fund is on what we would consider to be the light end of the sustainability scale, its popularity demonstrates the building investor interest in the ESG space,” says Parekh. Two other popular BlackRock funds were the Silver-rated iShares UK Equity Index and the Gold-rated iShares North American Equity Index, which attracted more tha n£400 million combined.
Rival Vanguard also continued to attract assets – the Gold-rated Vanguard FTSE UK All Share Index Unit Trust and the five-star rated Vanguard FTSE Developed World ex-UK Equity IndexFund had inflows of £104 million and £114 million respectively.
Alternative investments had another dire month, and have now shed more than £17 billion of assets in the past year. The fall in popularity of absolute return funds, which has seen outflows for 27 consecutive months, has been the main driver of this trend. The most unpopular funds include Silver-Rated BNY Mellon Real Return, Neutral-Rated ASI Global Absolute Return and Invesco Global Targeted Returns.
Meanwhile fixed income remained popular, attracting £851 million of investors’ money in January. Leading the way with inflows of £244 million was MI TwentyFour AM Momentum Bond, a fund that invests in asset-backed securities. Equity and allocation funds are in positive territory, with modest growth in their assets of £540 million and £408 million respectively.
The effect of the coronavirus outbreak has rippled across the global economy causing many investors to take money out of the market until the situation calms. It's no surprise then, that money market funds saw inflows of £900 million in the month - they are often a popular choice for investors trying to protect their capital at times of uncertainty, and this is the highest monthly inflow for the category since April 2017.
The firms who mostly benefited from that were Royal London and Federated; Royal London, in particular, saw the second highest of all fund group inflows. Meanwhile, the outbreak has impacted sentiment towards Asia-Pacific ex-Japan equity funds, which lost around £250 million - the highest monthly outflow from the group since July 2018.
Passive US Options Popular
Notably, money continued to pour into passive fund options too. Investors have been steadily losing confidence in the ability of active managers to beat their benchmark, particularly when global stock markets have been on a largely uninterrupted upward trajectory for a decade. Some of the £1.4 billion withdrawn from actively managed funds is clearly finding a home in passive options, which attractive £2.2 billion of investor money in the month.
In particular, the US Large-Cap category was popular, attracting £381 million - of which 99% went into passive products. “Investors have generally been positive on US equities, despite trade war concerns, as the economy has continued to perform and the Federal Reserve's determination to keep interest rates low has seen the market perform well,” says Parekh.
