June saw a subtle but telling shift in investor behaviour. While total flows into retail funds remained marginally positive, beneath the surface the picture was far from calm. Equity funds faced heavy redemptions, with global strategies losing their lustre, even as European equities attracted fresh money. HL investors continued to favour global funds, whilst their ETF investors are branching into some more niche areas.
The full Investment Association data release can be seen here.
Victoria Hasler, head of fund research, Hargreaves Lansdown:
“Economic and geopolitical uncertainty finally started to bite in June. While overall flows into retail funds were marginally positive, equity funds saw significant outflows of £1.0bn. This was a major shift away from the £549m of inflows they saw last month. Fixed Income and Mixed Assets funds fared much better, with both asset classes in inflow. Mixed Asset had the highest inflows, at £502m over the month, with the bulk of this in the Mixed Asset 40-85% Shares sector. Investors seem more inclined to entrust asset allocation to an expert during more difficult times, but the reduction in CGT allowances may also be driving this trend to some extent. Fixed Income saw inflows of £193m.
Within equities there were some winners, with the IA Europe excluding the UK sector experiencing inflows of £198m. Whether this is due to the popularity of certain sectors within Europe, such as defence, or is simply investors wishing to diversify away from the US is hard to tell. Japanese equity funds also saw small inflows of £127m. The more defensive nature of Japanese equities, and particularly the yen, tends to appeal during times of turbulence.
On the other hand, Global Equity funds, one of the most popular sectors over the last few years, saw outflows of £148m. Asian funds also suffered small outflows, but the biggest loser by far was the UK Equity sector which saw a huge outflow of £964m over the month. This was particularly disappointing after a couple of better months for UK equities when outflows seemed to be slowing.
HL clients are bucking the trend somewhat, with Global funds continuing to dominate the most bought lists. This is perhaps not surprising in a difficult environment when many would rather not take their own asset allocation decisions. It was pleasing to see that the most popular open-ended fund over the month was an actively managed offering, the Artemis Global Income fund. Income funds, on the whole, tend to be a little more defensive than the wider market and that, combined with this fund’s value bias, could be what attracted investors. Passive funds still dominate the list though, with 9 out of 10 of the top funds in June being passively managed.
Within investment trusts, some new names have crept into the most bought list. While the core of the list is still made up of either the well-known and trusted stalwarts of the sector such as Scottish Mortgage Investment Trust and City of London Investment Trust, or the income-focused infrastructure trusts, both an Asian fund and a REITs fund have made it into the top ten this month. The most likely explanation for this is investors seeking diversification, but with some trusts still trading on attractive discounts, this could also be tempting more adventurous investors.
There were also some interesting entries on the most popular ETFs list. The usual US, global and technology ETFs featured, but there were also three defence ETFs as well as a gold ETC and an artificial intelligence and robotics ETF. It seems that ETF investors are using these instruments to allocate to some more niche areas in their portfolios.”
