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ESG fund sales are keeping the lights on

  •  Responsible fund sales account for three quarters of net fund sales, according to latest data from the Investment Association
  • Global funds continue to hoover up money
  • UK funds are still deeply out of favour
  • Tracker funds have a bad month
  • A mysterious £1.4 billion inflow into funds with no sector allocation keeps equity flows out of the red

Laith Khalaf, head of investment analysis at AJ Bell, comments:

“Ethical fund sales are keeping the lights on in the UK investment industry, accounting for three quarters of net inflows in November, according to latest data released by the Investment Association. What is less clear is how much of this money is being directed into funds that are dyed-in-the-wool ESG champions, compared to traditional funds that have integrated ESG considerations into their investment process, which most would see as a less vigorous approach to investing ethically.

“Global equity funds continue to attract new flows, to the tune of £866 million, and given the number of ESG offerings in the sector, combined with strong performance numbers, that should come as little surprise. With the exception of a small positive showing for Japan, all other equity regions saw outflows, particularly the UK, where investors withdrew £755 million. Investors have been shunning the domestic market for more than five years now, and this trend shows no signs of abating, despite the cyclical value stocks which populate much of the Footsie having an improved year in 2021.

“As a whole, regional equity strategies saw an outflow of £474 million, as the flows into global funds were not enough to counteract the money being withdrawn from the UK, the US and Asia in particular. Equity flows as a whole were positive though, at £918 million. This puzzler can be partially explained by a £1.4 billion inflow into funds which sit in the ‘Unallocated’ bucket, in other words they have not chosen to be allocated to a sector.

“Tracker funds had an uncharacteristically weak month in November, registering sales of around half their normal level. That might suggest some skittishness about allocating cash to the market, even before Omicron took some wind out of bullish sails. December’s fund flows are likely to have taken a hit from concerns over the new COVID variant, but overall 2021 will have been a bumper year for fund sales, perhaps not eclipsing 2017’s record busting figures, but likely finishing in an honourable second place.”

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