Fund Flows: US Trackers in Favour, UK Still Unloved

UK domiciled funds saw a hefty £7 billion inflow in October, latest Morningstar research reveals. However, this was due to a one-off large flow of assets into four-star rated BlackRock ACS US Equity Tracker, which totalled £7.5 billion. “This also artificially inflated the total for equity funds, which would have otherwise been negative for October,” says Morningstar analyst Bhavik Parekh.

(Morningstar) The most popular asset class is once again allocation, which attracted £633 million in October as investors tried to shield their portfolio against the volatility caused by the US election.

In second position are fixed income funds, which saw £1.7 million of net subscriptions respectively - fixed income funds received inflows for the sixth consecutive month. In particular, the government-bond category experienced much of this interest and there was also a swing of assets from the GBP corporate bond category into their hedged counterpart, as people wants to protect themselves from currency fluctuations ahead of the Brexit deadline.

In third position are money market funds. The asset class, which has been in and out of favour during 2020, saw a net subscription of £272 million in October, primarily thanks to a £230 million net inflow into Royal London Short Term Money Market fund.

In negative territory are alternative and property funds, which bled £845 million and £88 million respectively. However, the Gold-rated iShares Global Property Securities Equity Index was an exception, attracting net £1.6 billion over the last four months.

Morningstar Categories: Winners and Losers

The most popular category was the US large-cap blend equity category, which had an £7 billion inflow, thanks to a £7.5 billion net subscription for BlackRock ACS US Equity Tracker. “This sum can happen when large, often institutional, clients move their assets or when asset managers shift allocations between vehicles,” explains Parekh.

Meanwhile, UK equity funds remained out of favour in October, bleeding £1.6 billion, continuing the trend from the previous three months. In particular, the UK equity income category had the highest net outflows (£805 million), followed by UK flex-cap equity (£250 million) and the UK large-cap equity category (£200 million).

In the alternative space, multi-strategy funds continued to be unpopular with outflows from all the biggest funds in this category and shrunk by an additional 3% due to flows. By virtue of its size, Invesco Global Targeted Returns had the highest net outflow, followed by Aviva Investors Multi-Strategy Target Returns and Bronze-Rated BNY Mellon Real Return.

The Europe ex-UK large-cap category was also down, shedding £673 million. However, this was mostly due to a notable £588 million outflow from three-star rated State Street European ex-UK Equity Tracker during the month. “Other passive vehicles in the category fared better, posting net inflows,” says Parekh.

Fund Groups

BlackRock is the winning fund group in October, with over £14 billion of assets poured in its vehicles.

“Given its scale and wide variety of its client base, BlackRock occasionally sees months in which there is a large inflow into a single or small handful of funds,” explains Parekh. “October was an example of this, and between two funds there was a net inflow of £13.1 billion.”

Contributing to BlackRock's inflow in October were also two ESG trackers, BlackRock ACS World ESG Equity Tracker and BlackRock ACS World Low Carbon Equity Tracker.

In second position is Royal London, attracting £806 million. This was driven almost exclusively by flows into its money market and sustainable funds - Royal London Emerging Markets ESG Leaders had £164 million of net subscriptions.

At the other end of the spectrum is Invesco, whose redemption was still substantial at £530 million. Once again, this was primarily due to outflows from its largest fund, Neutral-rated Invesco Global Targeted Returns but the firm has now dropped outside the top 10 largest fund groups so doesn't appear in our tables

Meanwhile, M&G saw a £513 million net redemption from its funds in October. The majority of this was due to outflows from the three bond funds managed by the firm's fixed-income stalwart, Richard Woolnough. Also the two-star rated M&G Smaller Companies had a large net outflow of £140 million.