UK investors pulled £1.8 billion out of equity funds in the first month of the year, with UK-focused options the least popular of the lot.
Latest fund flow figures from Morningstar Direct show that overall a net £300 million was added to funds in January, but UK equity strategies suffered outflows of £2.3 billion in the month.
With the country in the throes of a third lockdown and jittery about the last-minute nature of the Brexit deal secured in December, UK equities remained firmly out of favour with investors. Overall, equity funds saw their worst withdrawals since 2019, with outflows from every category except UK small-caps.
The UK Large-Cap category was the worst hit, with outflows of £1.3 billion and passive funds were not spared from the exodus either, suffering outflows for the first time since early 2019, totalling £363 million in the month.
Among the funds which suffered the greatest redemptions are BlackRock UK Equity Tracker, Majedie UK Equity, and Royal London UK Equity Income, which saw outflows of £452 million, £248 million, and £105 million respectively. The latter fund had its Analyst Rating of Silver put under review last year after the announcement that its manager, Martin Cholwill, is set to retire in 2021.
Where Did Investors Put Their Money in January?
Investors instead looked for surety in fixed income funds, which enjoyed inflows of £1.9 billion. But that doesn’t mean investors were entirely risk-off in the first month of the year – indeed, it was the riskier areas of fixed income including corporate bonds and emerging market bonds that saw the greatest flows in the asset class.
But the most popular Morningstar Category in the month was one which may be new to many investors; the Sector Equity Ecology category is comprised of funds investing primarily in companies whose products or services actively promote a cleaner environment. This group enjoyed inflows of more than £1 billion in the month, some 92% of which went into ACS Climate Transition World Equity, boosting the fund’s assets to £2.7 billion, despite having only launched in August 2020. It’s the latest sign of a pick-up of interest in ESG investment options from investors.
CCLA COIF Charities Ethical Investment also had its largest ever net inflows at £167 million. Morningstar analyst Bhavik Parekh says: “As its name suggests, the strategy is open to charities wishing to invest in a diversified fund that has ethical restrictions on what can be invested in. Two sustainable offerings by Royal London and one by Liontrust also saw inflows totalling £221 million.”
Top Fund Groups
BlackRock continues to enjoy its position at the top of the table for flows by fund group, with inflows of £430 million in January, bringing its one-year flows to a hefty £22.9 billion. Its flows for January were, however, eclipsed by Baillie Gifford, which attracted £622 million of new money in the first month of the year, bringing its one-year flows to £4.9 billion.
Notable, too, was Vanguard's performance in the month. Parekh explains: "Vanguard had net subscriptions into every one of its UK-domiciled funds except the UK equity and UK equity income trackers. This highlights how unpopular UK equity was in January. The Vanguard fund with the highest net inflows was its FTSE Dev World ex-UK Equity Index at £119 million."
Property funds also continue to be under a cloud, and many investors have taken the opportunity to hit the sell button on those funds which have re-opened to investors. L&G UK Property, which re-opened in October, saw outflows of £218 million in January. The category as a whole has seen redemptions totalling more than £1.7 billion over the past year, even while many of the funds in the group remain gated.
