Sunniva Kolostyak: Welcome to Morningstar. I'm Sunniva Kolostyak. With me today is Bhavik Parekh, Manager Research Analyst for Morningstar.
Hi, Bhavik.
Bhavik Parekh: Hello.
SK: So, you are our resident fund flow expert and you've taken a look at where investors have been putting their money in 2021. So, what's the key trend that you've seen?
BP: Yes. So, it probably comes as no surprise to anyone that sustainable investing trend has really powered the market forward. We've seen, at least in UK domiciled funds, £37 billion invested last year, which is £10 billion more than the whole market. So, they've seen new money, and they've also taken market share from other non-sustainable funds, which is pretty significant. And if we think about what we've seen over the last few years, then we might expect even more money to go into these funds this year. And if you look at individual funds where fund groups offer established sustainable funds and sustainable strategies, generally, they've been the top-selling fund or funds of that fund group, and we've seen that across all the asset classes. So, it's not just restricted to equities, for example.
SK: So, if we look on a category level, is there any specific investments that have kind of caught investors' eye and what have they been avoiding?
BP: Yeah. So, on a category level, UK equity continues to be unpopular. The large cap category and the equity income category, they were the two most unpopular. £16 billion came out of those combined. There was some good news for UK equity in terms of small cap. That category did see some inflows last year, and that was helped by strong performance towards the beginning of the year, especially. We also saw US large-cap blend and growth category see outflows. Perhaps investors taking profits because many of those funds have performed very well in recent years. But on the other end of the table, in terms of investors who are preferring some of the higher equity allocation categories, they were quite popular, as well as the global large cap blend and global large cap growth categories, which is a little counterintuitive given I've just said US equity categories were unpopular, and US equity accounts for more than half of the global equity categories. But if we look at the kind of funds that have been selling well in those global categories, it's been the sustainable funds. So, there's a good explanation there.
SK: So, about fund houses, which companies have caught investors' eyes this year?
BP: So, if you exclude money market, then Baillie Gifford actually was the best-selling fund house last year. Now, they had a very good 2019 and 2020. Many of their funds were top in the category, in their sector. So, they are definitely on the investors' radar. But we actually saw outflows for the first time since March 2020 in December as performance in some of those funds tailed off a little bit, and we've seen that performance continue into the beginning of this year. So, we may see further outflows in January. Royal London, Liontrust, they have benefited from the sustainable investing trend, and they continue to see lots of money to go into their sustainable ranges. On the other end of the table, for a second year in a row, Invesco once again the most unpopular fund, though the vast majority of the outflow from that fund house was their Global Targeted Returns Fund, which now having been in the top 10 only a few years ago, now is not even the top 300 funds in terms of size. Another similar fund group, M&G, they also because of outflows from the Property Fund and some of the older funds such as Optimal Income and Global Dividend, outflows from those funds means that that fund is quite near the bottom of the table as well.
SK: So, the last thing I want to ask you is passive versus active. 2020 was very much passive's year. So, what about 2021?
BP: Yeah. So, if we give the caveat that UK domiciled funds don't include ETFs, active funds actually had more inflows than passive funds for the first time since 2014, which is fairly significant. But if we go back to sustainable, again, that really explains the reason why most sustainable funds are active funds, and obviously, that's been driving the market and also allocation or multi-asset funds, they are pretty much all active funds as well. So, given that those two areas have kind of been driving the market, then I'm not surprised to see active funds outperforming passives.
SK: Thank you very much, Bhavik. From Morningstar, thanks for watching.
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