Fixed income funds remain a clear investor favourite despite poor performance so far in 2022 amid soaring inflation and rising interest rates. But in a volatile market environment, people invested more than £2 billion into UK-domiciled fixed income funds last month, showing a preference for security over returns.
Overall, the UK fund market attracted £1.27 billion in April – £656 million if we exclude money market funds – according to the latest fund flow data from Morningstar. Meanwhile, equity funds saw outflows of £2.49 billion, and the category now has negative one-year growth.
Allocation or multi-asset strategies remained popular, and were the second-most popular category. Last month, we saw the category bounce back as the top choice among investors after a slow start to the year, and it seems the appetite has remained.
And despite of the market rotation and recent underperformance, investors continue to love sustainable vehicles. Excluding money market, £1.8 billion was invested in funds with a sustainable objective. And while this is across asset classes, £1.3 billion was invested in sustainable equity funds.
One common denominator between the flows of these categories is passive strategies, which were involved in the vast majority of last month’s fund flows. Passive funds accounted for 60% of the outflows from all equity funds, and 76% of the inflows for fixed-income funds.
Within the popular fixed income category, gilt funds were the most favoured by investors. The largest fund in the category, BlackRock’s £5.4 billion iShares UK Gilts All Stocks Index, had the biggest inflow of £262 million (but is down 9.4% in 2022 in performance terms). Of the 17 funds to receive net redemptions, only two were passive strategies.
Despite fixed income’s popularity, it is the global large-cap blend category that appeared to be the most attractive alternative to investors. £1 billion was invested in the category in April, followed by global equity income, which saw £635 million in subscriptions.
Looking at recent market performance, UK equities have been more resilient than their US counterparts, but this has not persuaded investors. UK equity funds had already lost £5 billion in the first quarter of 2022, and last month a further £1.7 billion was redeemed. Of this, one billion was from large-caps alone.
Speaking of the US, investors in US large-cap categories have largely been withdrawing assets. The blend category had the largest outflow in April, with £1.15 billion redeemed, and the growth category saw £227 million in withdrawals.
HSBC American Index received £259 million net inflows, but redemptions of £809 million and £328 million from iShares North American Equity Index and BlackRock ACS US Equity Tracker, respectively, led the blend category to one of its highest ever monthly outflows.
For allocation funds, it was the categories with the higher equity allocations that experienced the most inflows — for example, the GBP Allocation 60-80% Equity category had £370 million in net subscriptions.
And, thanks to new multi-manager alternatives fund by Brewin Dolphin (MI Select Managers Alternatives), which had a net inflow of £258 million, the alternatives category avoided the large redemptions we have become accustomed to recently.
On the fund company side, BlackRock, which has been consistently hoovering up assets in the past years, has now seen its third-consecutive month of outflows. And, the withdrawal from its US equity tracker was among the highest on record. However, its popular Blackrock ACS World Low Carbon Equity Tracker remains one of the biggest draws for investors.
The most popular fund company was Fidelity, which received £842 million in net inflows. Its Global Dividend fund attracted £241 million, and its global, US, Japan, and Europe ex-UK equity index funds were all subject to significant inflows. Only Fidelity Index UK had a significant outflow: £119 million.