Last month was something of an unpredictable month for global stock markets, so it should come as no surprise to see UK equity funds suffer outflows from investors in Morningstar’s monthly flow data – but the good news is that it is a relatively smaller withdrawal.
Overall, UK funds saw outflows in May, but Morningstar analyst Bhavik Parekh puts the total outflow of £476 mn ($604 mn) from the sector in context by contrasting it with the massively higher £5.8 bn investors withdrew in January, or the £5.4 bn they withdrew in March.
The Aviva Investors Developed World ex-Equity Fund – which tracks companies on the FTSE Developed ex-UK Index – suffered the biggest outflows of nearly £2 bn.
At the other end of the scale, the four-star-rated AI North American Equity Index Fund – which follows companies in the FTSE North America Index, with Microsoft, Apple and Amazon being the top three holdings – saw £1.3 bn of new investment.
The next most popular fund, the money market Federated Short-Term Sterling Prime – which invests in high-quality sterling-denominated short-term debt companies, with the top three holdings being Barclays Capital Securities, Lloyds Bank and Standard Chartered Bank – brought in £442 mn, with its latest inflows being part of a positive long-term trend. ‘The Federated Short-Term Sterling Prime Fund has been one of the main drivers of the growth in money market funds in recent months,’ Parekh says, noting that the fund size is now close to £5 bn.
Despite the ongoing Brexit crisis and political uncertainty, investors backed the UK All Companies sector – UK listed companies focused on capital growth – above any other, with £372 mn of inflows. Despite recent unpopularity, UK equity income funds – which seek out high-yielding companies – also saw a rebound, with £135 mn of new investor money.
The least popular sector was targeted absolute return – funds that aim to deliver positive returns in any market conditions – with more than £1 bn of outflows. Investors also pulled £302 mn out of global emerging markets and £252 mn out of Japan. Other categories snubbed by investors include European smaller companies, UK smaller companies, China and Europe ex-UK.
Parekh says the strong US dollar has made emerging market funds unpopular, but funds focused on China performed well in the first quarter after a terrible end to 2018.
Passives also played a big part in May’s inflows. BlackRock saw the biggest inflows among fund families in May, with £1.1 bn of new money, while Vanguard, another big name in the passive sector, attracted £678 mn.