- Equity funds saw modest inflows in March, according to latest industry data from the Investment Association…
- …but the exodus from UK and active funds continues
- US equity funds do a lot of the heavy lifting
- ESG funds still leaking cash
- Institutions are still pulling money out of funds too
Laith Khalaf, head of investment analysis at AJ Bell, comments:
“March is one of the two big months of the ISA season, and it was relatively benign for retail fund flows, but not barnstorming by any stretch of the imagination. Retail investors put a net £446 million into funds, but that follows withdrawals of £3.8 billion across January and February. Fund managers will be hoping this is the start of some green shoots of recovery for the industry, but it could simply be a blip caused by increased activity at the end of the tax year and some renewed buoyancy in the global stock market.
“Indeed it’s notable US equity funds did a lot of the heavy lifting in the first quarter, as investors cast aside concerns over the concentration risk and relatively high valuations of the Magnificent Seven. The big drag on fund flows came from the usual suspects, UK equity funds, which saw £3.4 billion of outflows in the first three months of the year. Dismal, but par for the course nowadays. Active funds also continue to lose money to the passive juggernauts. Tracker funds saw £6.6 billion of retail inflows in the first quarter, while active funds saw £10 billion of outflows.
“Active fund managers plying their trade in UK equities might well be weighing up some mid-life retraining opportunities. The government is hoping to reinvigorate investment into UK equities with the launch of the UK ISA, but the tide they are swimming against is immensely powerful. A wildly unrealistic hope would be that the UK ISA creates an additional £4 billion of inflows into UK equities every year. Currently UK equity funds are seeing withdrawals of that order every quarter.
“The fanfare surrounding ESG funds has also cooled from its peak in 2021. Outflows of £725 million in the first quarter suggests the ESG theme is in abeyance for the moment. Thematic investing does tend to be quite cyclical, and there may come a time when ESG funds step into the spotlight again, but sales may struggle to hit the dizzying heights of the pandemic, when strong performance and an armada of fund launches created a swell of demand.
“It's important to recognise that Investment Association retail fund flows are an important but not exhaustive indicator of UK investor behaviour. There are significant chunks of retail investor activity which are not captured in these figures, in particular flows into and out of individual stocks, investment trusts, and some ETFs. Throw in crypto if you view it as an investment rather than a punt. Nonetheless the figures do highlight the meagre pickings currently available to the fund management industry, especially when you consider how negative institutional flows have been too, registering £5.2 billion of outflows in the first quarter. It’s way too early to say the crunch is over for the fund management industry, but the rate of attrition appears to be slowing.”
