UK funds saw inflows halve in May, attracting about £2 billion in the past month, according to the latest Morningstar fund flow data.
The muted inflows were £2 billion less than the March and April highs of £4 billion, but the trends of recent months still persist with cautious investors selecting fixed-income and allocation funds over equities. Some £1.1 billion was poured into these funds in May, with global strategies having a slight edge over UK-focused options. Fixed-income and allocation funds have now both enjoyed net inflows for 25 of the past 28 months.
Equity funds saw inflows of £1.4 billion in the month, but £858 million of this was a result of one-off large net inflows into two State Street tracker funds - APAC ex Japan and Emerging Markets. Passive funds were the more popular option in equity for the month overall, with active equity funds suffering outflows of £748 million.
For the second consecutive month, the global emerging markets equity category had one of the highest net inflows, largely due to a £611 million investment into Royal London Emerging Markets ESG Leaders Tracker (the main investors into the fund are Royal London's own pension funds). This growth didn't carry through to all of the firm's fund range, however, and the Royal London UK Equity Income fund saw its second highest monthly outflow on record, with redemptions of £166 million.
The second-most popular category in May was GBP Moderately Adventurous Allocation, which has been a consistent chart-topper over the past 12-18 months. However, inflows were more broadly spread than usual. The usual winners in the category remained Baillie Gifford Managed, Liontrust Sustainable Future Managed and Royal London Sustainable World Trust, but fund interest grew for charity fund Sarasin Endowment Fund and The Northern Lights Fund, which was launched in May.
In the GBP moderate allocation category, LF Ruffer Absolute Return and Bronze-rated LF Ruffer Total Return attracted a combined net £156 million. Morningstar’s analyst Bhavik Parekh says the interest in these strategies comes off the back of strong performance since the start of 2020, thanks to their protectionist strategies: “Between the start of 2020 and May-end 2021, the two strategies have outperformed peers and the Morningstar UK Moderate Target Allocation category index by almost three-fold,” he says.
In the Global Corporate Bond - GBP Hedged category, two funds in particular drove inflows: SPW Multi-Manager Global Investment Grade Bond with £202 million, and ASI Global Corporate Bond Tracker with £190 million – making the latter the second largest UK-domiciled bond fund.
Legal & General saw the highest net subscriptions amongst the largest fund groups, at £575 million. L&G Global Health & Pharma Index Tracker accounted for £245 million of the success, and was the largest inflow in this fund's history, and L&G Short Dated Sterling Corporate Bond Tracker added £129 million.
Other fund groups that performed well were Fidelity, Vanguard and Schroders. Fidelity added £399 million to its portfolios, with the Silver-rated Fidelity Global Dividend representing half of that. Gold-rated Fidelity Special Situations has now seen three months of consecutive subscriptions after several years of outflows. Lagging behind their peers were M&G, Invesco and Colombia Threadneedle, which all saw net withdrawals.
The month has been particularly sour for M&G. The group has seen continued outflows from some of its bond strategies, and after re-opening its property fund, the group saw a total net redemption of almost £1.2 billion across all of its funds in May. The M&G Property Portfolio, the second-largest open-ended fund in the sector, has been gated since December 2019 when it suspended trading due to lingering concerns about Brexit and a possible Corbyn government. Now, it has lost £806 million – a third of its assets. This is the largest outflow since late 2018, but in that case, a significant volume were due to redomiciling of assets to Luxembourg.
