Outflows from UK funds persisted in July but slowed somewhat after two months of mass exits. Last month, investors withdrew just over £1 billion, bringing net outflows for the past three months close to the £10 billion mark.
If we exclude money market funds from the equation, outflows in July reached £2.3 billion. The equity category alone had £2.7 billion in outflows, reflecting investors’ soured confidence in stock market growth. Still, this is less than in the past two months, where redemptions were between £3-4 billion.
On the other hand, investors have been cautiously optimistic about fixed income this year, despite the inflationary backdrop. £739 million was added to the category, up from £12 million last month. Global corporate was the most popular category here.
Allocation strategies were subject to a second month of net outflows after seeing strong inflows since the start of the pandemic, according to Morningstar analysts Bhavik Parekh and Jack Fletcher-Price.
"This category houses some active strategies with the mandate of capital preservation, including Ruffer Diversified Return, which bucked the trend," they say, noting that the fund had redemptions of £261 million.
"There has yet to be an indication of their appeal during a time when investors are taking risk off the table."
Sustainable funds ended up in positive territory but also these equity strategies have seen fewer inflows than previously.
Looking at different fund categories, outflows in general were markedly greater than inflows, and some of the largest categories have experienced continued withdrawals as well.
UK large-cap funds had the second-highest redemptions in July, but over the past 12 months witnessed £10.9 billion in withdrawals. The category consists primarily of index funds and has yet to record two subsequent months of net inflows since Q1 2020. Still, assets in the category remain well above the £100 billion mark.
The US large-cap blend category had the biggest outflows this month with £661 million. The category had inflows in May and June, but this did not stop investors reverting back to withdrawals in July.
On the flip side, smaller categories were the most popular last month, recording the highest inflows. Both global corporate bond and equity healthcare house few funds, and the aggregated flows for each respective category were concentrated in their largest strategies: iShares ESG Overseas Corporate Bond Index (BlackRock) and L&G Global Health & Pharmaceuticals Index Trust.
Global equity income has also enjoyed consistent inflows since February, with active offerings taking centre stage. The most popular vehicles included Trojan Global Income, Fidelity Global Dividend and Baillie Gifford Responsible Equity Income.
While the aforementioned BlackRock fund was the most popular strategy last month, the fund company overall experienced its largest redemption since 2018 (£1.6 billion). Three of the funds with the largest outflows were also BlackRock-managed; the biggest was BlackRock Cash Fund with £825 million.
Many of Baillie Gifford’s strategies had positive returns in July, but the continued outflows it’s seen this year have persisted. Their sustainable offerings Global Stewardship, Positive Change and Responsible Global Equity continue to see the bulk of inflows; meanwhile the Diversified Growth, Global Alpha Growth and European funds continue to receive the largest outflows. On a year-to-date basis, Baillie Gifford has been subject to £5.3 billion of net outflows from its open-end vehicles.
Legal and General, on the other hand, has seen strong net inflows so far this year, and the past month was no different. As mentioned, its healthcare tracker was among the most popular funds overall in July. Moreover, its Global Inflation Linked Bond Index received £89 million. In 2022 thus far, the most subscribed offering with £750 million is Future World ESG Developed Index, followed by the US Index Trust at £527 million.
