Fixed income funds remained popular at the start of 2023. They attracted £1.58 billion in inflows over the course of January, Morningstar data shows.
But overall investors remained cautious about putting their money in UK-domiciled funds. In the first month of 2023, investors withdrew a net around £800 million from UK funds, but this is if we exclude money markets, which had £2 billion inflows alone.
January does however paint a slightly more optimistic picture than in December; a relatively muted month of little flow activity which still ended up with almost £2 billion in outflows.
Equity and allocation funds continued to see net redemptions, a trend we’ve seen over the course of 2022. In January, outflows equalled £1.18 billion and £926 million for the two categories, respectively.
If money market funds are excluded, fixed income was the only broad category with net inflows as the smaller fund categories like alternatives, properties and other, all had outflows too (from £5 million to 215 million). This is similar to the one-year figures, where fixed income has attracted almost £10 billion while all other categories have seen withdrawals.
Similarly, investors have a clear type in what fund they like to invest in: they want sustainable, and they want passive. Jack Fletcher-Price, associate manager research analyst at Morningstar, points out that investments flowed a more modest aggregate level than it has over the past months, but that these vehicles remain popular.
He notes that fund groups with the bulk of their assets under management in active strategies continue to see net redemptions, “while those with passive offerings are generally less affected by outflows”.
As a result, we saw BlackRock and Vanguard attract around £350 million each, followed by Royal London with inflows of £342 million in January. Meanwhile, Baillie Gifford continued seeing outflows (£483 million), alongside Aviva (£340 million), Fidelity (£292 million), and Columbia Threadneedle (£208 million).
Passive funds overall attracted a net £1.46 billion while active funds saw outflows of £2.11 billion. Funds with a sustainable prospectus saw £518 million in subscriptions, and those without had redemptions of £604 million.
On a category level, GBP Corporate Bond was the most popular investment, and the category saw its largest inflow in almost five years. It’s however the only bond category in the top five and is followed by US Large-Cap Blend Equity, Long/Short Equity – UK, and Global Large-Cap Blend Equity.
However, the UK market in general is not feeling the same love as long/short equities, and accounts for four of the five spots at the bottom, including the UK Large-Cap Equity, UK Flex-Cap Equity, and UK Equity Income categories. GBP Flexible Allocation was also the second most unpopular category in January.
Finally, let’s look at the most popular funds. As mentioned, BlackRock and Vanguard had the largest inflows of any fund groups, and both have two funds each in the top five, including BlackRock’s iShares North American Equity Index, which has a Morningstar Analyst Rating of Gold.
Equally, though, the least popular fund last month is also a BlackRock iShares fund: iShares UK Equity Index, another Gold-rated fund, but over the past one year, the fund has leaked about £1.60 billion.
Fundsmith Equity is another fund we’ve now got used to seeing in the bottom five. The strategy was one of the least popular in 2022 overall, and also saw redemptions (worth £161 million) in the first month of the year. Over the past one year, the fund’s outflows total £2.56 billion – but the UK’s largest fund, the third Gold-rated fund in our list, still holds £22.63 billion in assets.
