As the extent of the spread of the coronavirus unfolded, February was a tough month for stock markets. Yet investors poured almost £1 billion into UK equity tracker funds even as the FTSE fell to its lowest levels in years.
Active funds saw total net outflows of £1.9 billion in the month, while passive funds attracted as much in total net inflows. In particular, investors funnelled £929 million of their money into UK equity trackers suggesting that, in February at least, investors thought there was going to be a dip and quick recovery of the equity markets.
February was a positive month for funds as a whole, even though fund inflows were lower than in recent months with overall net inflows just about in positive territory, at £126 million.
Allocation funds, which have been performing well given the strong equity and bond markets up until February, have been attracting assets. Indeed, it was the most popular category in February, attracting £640 million of assets, with a range of funds from a variety of providers enjoying inflows. Allocation funds are also known as multi-asset funds, and have the freedom to invest across equities, fixed income and other assets; this diversification can provide protection at times of volatility making them a popular choice at times of uncertainty.
Meanwhile, unlike in previous months, fixed income funds saw relatively subdued inflows, at £155 million, and equity funds £382 million. ”But this was still an improvement on the general trend of 2019, which saw heavy equity fund outflows”, points out Morningstar associate analyst Bhavik Parekh.
Alternative funds, meanwhile, continued to lose assets, with another £1 billion withdrawn in February.
The global large-cap blend category attracted the most assets in February, and a remarkable 87% this money went into passive funds. Of these, the low carbon equity tracker offered by BlackRock saw the highest inflow (£213 million). Parek says: “On the other hand, there were a number of active funds in the category that attracted assets, most notably Royal London Global Equity Drivers, which attracted £164 million in February.”
Passive Funds Still Popular
As investors continue to seek out passive funds, BlackRock - the company behind tracker fund giant iShares – enjoyed inflows of £852 million in February, and more than £9 billion over the past year. iShares is known for offering a range of low-cost passive options that reliably track a given stock market. Royal London, which manages a range of multi-asset funds, saw the greatest inflows in February; its Royal London FTSE 350 Tracker fund saw the highest net inflows of all funds in the month.
Vanguard too has reaped the benefits of the growing popularity of passive vehicles in recent years and the story was no different in February. However, their active vehicles also saw inflows in February. Parekh says: “Especially in the [five-star rated] Vanguard Global Balanced and [four-star rated] Vanguard Global Emerging Markets funds. Vanguard has been careful to position these funds so as not to cannibalise their passive counterparts.”
Invesco, meanwhile, contiued to bleed assets; the fund house has seen total net outflows of almost £10 billion over the past year. Its Neutral-Rated Invesco Global Targeted Returns saw outflows of £343 million – “A large figure but less than it experienced in autumn 2019,” says Parekh – and the Neutral-Rated Jupiter Absolute Return, also in the same category, saw a net outflow of £267 million after poor performance in the first two months of the year.
The Europe ex-UK equity category saw outflows of £310 million, approximately 40% of which came from the Neutral-Rated Jupiter European fund; it has seen consistent outflows since Alexander Darwall announced he was stepping down last year to set up his own boutique investment house.
But investors appeared to remain positive on funds focused on quality stocks and reliable income. The five-star rated TB Evenlode Income, the Bronze-Rated Trojan Income and the Silver-Rated JOHCM UK Equity Income all managed to attract assets in the month, even while the UK equity income sector remained unpopular overall, with outflows of £190 million.
