Investors have pulled another £2.26 billion out of UK Equity funds as uncertainty over Brexit and a second wave of Covid-19 weigh on sentiment. While a number of the top performing funds in August were UK-focused, the table-topping returns were not enough to offset investors concerns.
“In March and April, opportunistic investors looked to take advantage of heavily subdued equity valuations, but since then the UK equity market has continued to underperform other equity markets, and investor sentiment has turned sour,” says Morningstar analyst Bhavik Parekh.
The UK market as a whole has been out of favour for four consecutive months but it was outflows from two State Street tracker funds that particularly weighed on overall numbers in August. The three-star rated State Street UK Equity Tracker saw almost £400 million of outflows in the month and the four-star rating State Street Europe ex UK Equity Tracker £287 million. Meanwhile, the four-star rated State Street ACS North America Index Equity, which sits in the US large-cap blend equity category, enjoyed £739 million of inflows.
Sustainble funds have also continued to enjoy a steady stream of new investor money, with net inflows of £1.5 billion in August.
Fixed Income Funds in Favour
Elsewhere, fixed income funds attracted £872 million of net new money, according to Morningstar data. The three sterling-hedged global-bond categories were among the most popular with inflows of £1 billion between them. “These categories have been popular throughout 2020 as investors have looked to allocate away from the UK while still hedging back to sterling, which has been somewhat volatile in recent times,” explains Parekh.
August was also the first time since mid-2018 that alternative funds saw total inflows of less than £200 million in consecutive months. Allocation funds, instead, saw assets grow by 1% through flows, with £1.6 billion poured into the group. Two Royal London sustainable funds, the Neutral-Rated Royal London Sustainable Diversified Trust and Royal London Sustainable World Trust, as well as the five-star rated Baillie Gifford Managed, were very popular in the category.
Fund Groups: Winners and Losers
Blackrock attracted the most assets in August, with total inflows of around £1.6 billion across its range. In particular, almost £1 billion went into two sustainable vehicles: the ACS Climate Transition World Equity and BlackRock ACS World ESG Equity Tracker.
Meanwhile, the Gold-Rated iShares Global Property Securities Equity Index saw a surprise £367 million net subscription in August.
“Property funds have performed poorly this year as markets have been worried about the profitability of retail and office real estate,” says Parekh. “However, as many of the direct investment property funds have been gated in 2020, the iShares tracker was one of the few good options available for investors wishing to allocate to global property in an open-end vehicle.”
The property sector has been widely out of favour with investors, with most open-ended funds focused on asset class suspended. Earlier this month the Threadneedle Property fund announced it would re-open in October after being gated for six months.
In second position is Schroders, with £588 million in new subscriptions across its funds, largely due to inflows into the Schroder Countrywide Managed Balanced fund.
In third position is Baillie Gifford. “Some of its funds have been among the most popular this year as the typically growth-orientated strategies have achieved high returns,” explains Parekh. “Highly weighted holdings such as Tesla, Shopify, and Spotify, which have performed very strongly in 2020, led a number of funds to outperform their respective benchmarks by 20% to 50% in the year so far.”
At the other end of the spectrum sits Invesco, which saw net outflows of £275 million in the month. However, Parekh points out: “While this still represents a sizable total, it is much lower than in previous months and is now more in line with similar asset managers.”
