UK funds attracted £1 billion in October, according to Morningstar data, and allocation funds remained the most popular category, closely followed by fixed income. And, UK equity continues to be shunned by investors.
In terms of asset flows, the past couple of months have been muted, and October was no different. The £1 billion inflow – down from £1.26 billion in September – is an increase of just 0.07% in total market size.
In September, we saw a slight dip in allocation’s dominance, but the category is almost back over the £1 billion mark with net subscriptions of £984 million. This was closely followed by fixed income, the least popular category last month. In October, fixed income attracted £770 million; corporate bonds were slightly ahead in popularity while GBP government bonds was the only one with any significant outflows.
At the other end of the spectrum, the alternative category was by far the least popular. Outflows totalled £633 million, and so far this year, net redemptions equal £6.29 billion. Equity funds had mixed results overall – only net £203 million was invested. UK equity strategies were very out of favour, and across all UK equity categories there were outflows of £1.9 billion. On the other hand, global equity and emerging markets categories saw subscriptions.
The equity category was a mixed bag. While investors found UK equities unattractive, passive and sustainable strategies had solid inflows. Interest in sustainable vehicles has ramped up significantly this year. According to Morningstar’s manager research analyst Bhavik Parekh, the average monthly flow for sustainable vehicles was just over £600 million in 2019, rising to over £800 million in 2020. But in 2021, that monthly average (year to date) totals over £3 billion.
“In the run-up to the 2021 United Nations Climate Change Conference, or COP26, sustainable fund assets reached a new peak of £172 billion, rising to a 12.2% share of the total UK-domiciled open-end universe,” he says.
Nearly all funds in the small sector ecology category did well, including BlackRock ACS Climate Transition World Equity, which attracted £241 million, and a new rival strategy from State Street (World TPI Climate Transition Index Fund) was launched with £181 million.
While the Morningstar category for global emerging markets also did well this month, this was largely driven by inflows into a fund exclusive to those in the Wales Local Government Pension Scheme. However, some are viewing the poor returns of the MSCI Emerging Market Index so far this year as an opportunity to invest.
UK large-cap equity remains in serial decline with over £1 billion of net redemptions, and several income categories (UK and Global) stayed out of favour. The global large-cap blend and growth categories have been amongst the most popular over the last 12 months. Recently, sustainable strategies have been main drivers: one HSBC and two BlackRock sustainable trackers were the most popular in the blend category, experiencing almost £1 billion in net inflows between them. In the growth category, Baillie Gifford Positive Change and Liontrust Sustainable Global Growth had the strongest investor subscriptions.
Fund groups' assets remained relatively stable, with very few seeing significant inflows or outflows. BlackRock attracted £971 million this month, whereas Fidelity and Invesco were amongst the least popular and saw net redemptions of £378 million and £377 million, respectively. For Fidelity, redemptions were spread across a number of strategies but mainly from those in the global emerging markets equity and GBP corporate bond categories. In contrast, Invesco's outflow was largely due to one fund, Invesco Global Targeted Returns (£187 million), but there weren't any funds with any notable inflows either.
