Laura Suter, personal finance analyst at investment platform AJ Bell, comments on the latest fund flow figures from the Investment Association:
“May was a bright spot for investors in a pretty grim year so far, with markets rebounding from their March lows and most major indices across the globe recording gains for the month. UK markets in particular continued climbing off the back of gains made in April, with the FTSE 100, FTSE 250 and FTSE All Share all up almost 6% in May. Despite that, UK equity funds saw more muted inflows than in April, with £422m flowing into UK equity funds, including £46m of outflows from smaller companies-focused funds.
“After US markets rose by 18% in April it’s no surprise that investors flocked to the market in May, with £729m put into US-focused funds in the month – and they were rewarded by a further 8% rise in the S&P 500 in the month. US funds have been a bright spot so far this year, handing investors some of the highest returns of all funds and rebounding more impressively. We may see this turn in June’s figures, as investors who bought in the market lows look to cash in gains and also worries about the impact of a second wave start to hit confidence in the country’s recovery.
“With markets so volatile and so much of the outlook uncertain, it’s no surprise that investors are moving into global funds and relying on fund managers to make the decision for them on where to invest – or putting their money in a broad global index tracker. Global equity funds saw £873m inflows in May, taking total inflows this year to £1.8bn. Considering the MSCI All World index is broadly flat for the year, investors may consider this has been a good move in comparison to the falls seen elsewhere.
“Safe havens were also in favour, with bonds seeing £1.9bn of inflows in the month, including £675m into UK Corporate bonds and almost £600m into Global Bonds – making them among the most popular sectors.
“As with April, active funds continued to dominate as investors look to fund managers to navigate current markets and dodge some of the worst fallers. However, data shows that many active managers have failed to outperform markets in the past six months, particularly in UK funds*. This means that if investors are left disappointed with performance we might see a switch back to passives in the coming months.”
*Based on average returns of UK funds in the IA vs the index performance. The average UK All Companies fund has delivered the same return as the FTSE All Share in the first six months of the year, of -18%. In total, almost half of active funds have delivered a worse return than the index.
