Fund flows have slightly increased in September, according to Morningstar data, despite significant outflows for fixed income and a slowdown in allocation fund inflows.
All in all, UK funds attracted £1.26 billion in September, up from £828 million in August. While this is an overall increase, 60% was allocated to money market funds. The category invests primarily in low-risk, short-term investments such as government securities, certificates of deposit and other highly liquid, safe securities.
Excluding money market, UK-domiciled open-end funds only attracted £496 million – half of the already low August number.
The September numbers could also suggest an end to the reign of allocation funds. The category has steadily attracted over £1 billion monthly for over a year, but for the first time in that period, inflows are well below at £563 million.
Flows Into Asset Classes
Despite an indifferent month for global stock markets, equity funds attracted £1.3 billion in what has been one of the better months for the category this year. The best area in flow terms was active sustainable vehicles, which saw £1.7 billion in net subscriptions.
The popularity of global large-cap growth equity and global large-cap blend equity categories also endured despite an average fall of 2% to 3% in performance terms. UK large-cap equity, however, was a mixed bag: funds owned mainly by institutional investors, such as those offered by Threadneedle, Aviva and Scottish Widows, as well as the expensive Virgin UK Index Tracker and L&G Index all saw redemptions. On the other hand, BlackRock, Royal London, and Fidelity trackers all saw subscriptions. Overall, there was a shift from active to passive vehicles in the category.
The redemption of fixed income comes down to a handful of funds. According to Morningstar’s manager research analyst Bhavik Parekh, this highlights investors’ concerns about inflation and “potential future interest rate rises by the Bank of England”. The GBP corporate bond category saw the biggest outflows and a fund termination: the £645 million UBS Corporate Bond UK Plus was liquidated.
Morningstar Categories With the Largest Flows
M&G Corporate Bond saw one of the largest monthly net withdrawals of any funds in the past two years. It has seen serial outflows for nearly a decade, but in September there was a large £801 million net outflow.
Meanwhile, the popularity of money market funds can be explained by the same concerns bond investors are having over interest rates – the Bank of England has started signalling it is ready to raise rates this year – it may make managers choose money market funds to lower the duration and cushion the effect of a rate change.
Funds With the Largest Flows
The liquidated UBS vehicle and M&G Corporate Bond were unsurprisingly at the bottom in September. But on the other end of the scale, sustainable vehicles accounted for seven of the top 10 funds by flows. At the top was Schroder UK Multi-Cap Income with £233 million net inflows.
Most M&G funds saw net redemptions last month. In total, the fund group saw outflows of £1.03 billion, bringing the total outflows to £5.56 billion in the past year. Aviva is the only other group with net outflows both this month (£225 million) and this year (£1.51 billion), while Royal London has the highest inflows this month, at £352 million, due to its many sustainable vehicles and index funds with ESG tilts. The group is closely followed by Baillie Gifford in terms of inflows.
Parekh also points out that just outside the top 10 table of fund firms is JP Morgan. He says: “JP Morgan has risen quickly up the table in the past year from barely being in the top 20 to almost being in the top 10.”
Flows for the Top 10 Fund Groups