Equity funds swung dramatically back into favour last month, according to Morningstar flow data, as investors returned to risky assets following a vaccine breakthrough and a decisive result in the US Presidential Election. The month also saw a significant comeback for active funds, which received three times the level of inflows as passive funds. In total, UK funds saw £6.5 billion of net inflows in November, with equity and allocation categories out in front with the biggest flows, while fixed income fell out of favour, and alternative and property funds saw net outflows.
Investors poured £4.6 billion into UK domiciled equity funds in November, the lion’s share of the month’s positive flows, surpassing the next biggest category, allocation funds, which brought in £2.8 billion. Some £1.6 billion of the net inflow into equity funds was due to the launch of funds by ACCESS, a government pension scheme for local councils, says Morningstar analyst Bhavik Parekh.
Allocation remained a popular category last month, continuing this year’s trend – funds in this broad category attracted £2.8 billion of net flows in November and £13.7 billion over the last 12 months. “Allocation funds, which are particularly popular with advisers, have had a strong year, and inflows have been rising since April. The launch of a number of multi-asset vehicles by various groups helped compound the category's popularity,” says Parekh. Strategies managed by JPMorgan, Baillie Gifford, and Royal London continued to be popular, while the recently launched Virgin Money Growth Fund 3 brought in nearly £1 billion in November.
While fixed-income funds have been in favour during this year’s volatility, the inflows slowed sharply in November to £107 million, a drop from £633 million in October, making the category the third most popular after equity and allocation over the year with £4 billion of net flows.
Alternative funds saw the biggest outflows among all categories, with £693 million of net investors money withdrawn during the month and over £9 billion for the year. Invesco Global Targeted Returns, the largest UK alternative fund, was the biggest contributor to the monthly outflows with £500 million pulled out by investors.
US Passive Funds Dominate
Where were fund investors putting their money? US large-cap equity funds remained the most popular, with nearly £2 billion of inflows – and that means that the category has received £11 billion in net inflows over the year, far ahead of the next biggest category, GBP Moderately Adventurous Allocation, with £4 billion. In October, this category was boosted by a hefty £7.5 billion inflow into BlackRock ACS US Equity Tracker, and the fund remained popular in November with an extra £1.3 billion of net new money put in.
US passive funds completely dominate this category, Parekh says, “owing to the perceived efficiency of the market and historical underperformance of active vehicles on average”. Europe funds, long out of favour with UK investors, made a comeback in November with £724 million of inflows during the month, although over the last 12 months outflows are over £2 billion. In terms of outflows, UK Large-Cap Equity shed over £1 billion in flows, but this can be explained by high activity among pension funds in this space, says Parekh, especially with outflows from Virgin Pension Growth (-£823 million) and Virgin UK Index Tracking Trust (-£695 million).
UK Fund at Number One
In terms of individual funds, it’s rare to see a UK index tracker at the top of the leaderboard, but PUTM Bothwell UK Equity 350 Fund beat even the BlackRock US equity tracker with inflows of £1.5 billion. Bronze-rated Man GLG Income moves into fourth place in November with £662 million in inflows, which grew the fund by over 70% after a winning a large client mandate. The fund’s 19% gain in November gave an extra uplift to its size, meaning that the fund grew £908 million to £1.74 billion. While BlackRock’s US equity tracker was firmly in favour, the UK equity tracker saw £916 million in outflows, although over the year the fund has brought in more than £5 billion.
Gold funds also saw outflows as investors shunned safe-haven assets: the two largest funds in this category, Bronze-rated BlackRock Gold & General and LF Ruffer Gold saw outflows of £235 million and £101 million respectively.
It was a good month for active fund groups, with most of the 10 largest asset managers seeing inflows (M&G and Schroders were the exception). Baillie Gifford, which manages Scottish Mortgage Trust, Vanguard and Royal London make up the top three positions in terms of flows in November.
“Royal London and Baillie Gifford maintained their positions among the most popular asset managers. Their strengths in sustainable vehicles and growth equity, respectively, continue to benefit them,” says Parekh.
