If there was ever a question of whether people are worrying about the state of global markets, our data has the answer. Last month, investors withdrew £4.3 billion from UK-domiciled funds – the worst month for flows since March 2020.
In May, equity funds suffered the most with net redemption totalling £3.4 billion. That’s 80% of the outflows if we exclude money markets.
So what’s the reason? According to Morningstar’s analysts Bhavik Parekh and Jack Fletcher-Price, funds can blame inflation, increasing interest rates and a worsening economic outlook for wreaking havoc on the markets and subsequently causing withdrawals.
Moreover, not a single category saw inflows this month. All asset classes experienced net redemptions for the first time since January 2019, when assets were offshored prior to Brexit.
As mentioned, equity funds suffered the brunt of the outflows and, within that, active funds really struggled. As you may expect, outflows have mirrored the continued short-term poor performance in quality- and growth-oriented funds such as Fundsmith Equity, which has seen the largest outflow in its history with redemptions worth £622 million. You can read more about its latest performance in our recent study of the UK’s biggest funds.
For the top 15 active equity strategies with the highest net redemptions, the majority had a growth style bias: these funds saw withdrawals total £1.4 billion in May. On the other hand, passive equity funds were fairly flat.
Allocation strategies have generally enjoyed inflows in recent years, but May saw outflows (£126 million) for only the second time in as many years. The category has still attracted close to £8 billion over the past 12 months though.
Even fixed income, which has been popular of late, was hit by investors’ de-risking activities, which can be seen within the different fixed-income categories: heavy outflows from the GBP corporate bond category and inflows into the equivalent short-term category, which is the less risky of the two.
That said, sustainable funds did manage to attract net inflows, but at a lower level. Seven of the 10 funds with the largest inflows were those with sustainability mandates. These vehicles are usually a big driver in the allocation category but they only managed to contribute with £121 million in May.
Parekh and Fletcher-Price also highlight that we’ve got a surprise category climbing the popularity ladder this past month: infrastructure. It remains a relatively niche area of retail investing, and the size of the sector equity infrastructure category is only £7 billion in assets. The funds in this category invest in listed infrastructure companies rather than the individual projects, which helps to avoid a mismatch in flows and investment time horizons.
“However, the category made a rare appearance among the most popular in May, thanks mainly to FTF Clear Bridge Global Infrastructure, M&G Global Listed Infrastructure, and a passive fund from L&G. The category's inflow of £273 million was one of its highest on record," they say.
Elsewhere, the global large-cap blend equity category was a clear leader this past month, with over £1 billion invested – over twice as much as the second biggest category, GBP government bonds. But these investments were not enough to offset almost £2 billion in outflows across GBP corporate bonds (its largest outflow since 2015) and £1.3 billion in outflows from UK large-cap equities.
At a fund group level, Baillie Gifford’s growth style and subsequent poor performance has led to outflows for the company. Last month, the company saw withdrawals of almost £1 billion, on top of the £2.7 billion seen already this year. This, coupled with a drop in asset size caused by performance, has seen the group fall to eighth place in terms of UK-domiciled AUM, having been fourth in December 2021.
Legal & General had the biggest inflows, just over £1 billion, and Fidelity attracted £347 million through a mixture of active and passive funds.
