• Fixed income funds lose £7.4bn in outflows
• Absolute Return sector shrinks 30% in two years – March outflows top £1.8bn
• UK All Companies funds a bright spot – with almost £1bn of inflows
Laura Suter, personal finance analyst at investment platform AJ Bell, comments on the latest Investment Association figures:
“March was a hairy month for investors with the FTSE 100 and S&P 500 both falling 13%, while the FTSE 250 index fell by 22%. Fund investors fared little better with 96% of the funds in the Investment Association universe handing investors a loss in the month.
“With this as the backdrop it’s unsurprising that investors ditched funds, with £10bn pulled from funds during the month. Investors left equity markets in their droves, with £1.1bn pulled in the month, but fixed income markets were the biggest loser with £7.4bn redeemed in March.
“Equity markets across the board were hit, with the worst areas being global with £684m of outflows and global equity income seeing £299m of outflows. Asian markets were also hit hard, as investors had fears about how well the region could recover from the Coronavirus, with £141m of outflows from Asia Pacific ex-Japan and £332m of outflows from Japan funds. One bright spot was UK All Companies funds, which saw almost £1bn of inflows during the month as investors sought to profit from the expected rebound in markets, while the UK Equity Income and UK Smaller Companies sectors saw outflows totalling £217m.
“March also saw a series of closures from UK property funds, as valuers struggled to accurately price the properties in the portfolios. This means the outflows of £89m from UK Direct Property shown in the data only shows part of the market, as from the middle of the month billions was locked up in the funds with investors unable to get out. With the property market having effectively ground to a halt and zero clarity on pricing, it looks unlikely that these funds will open up soon, until lockdown is over and property purchases can start again.
“Absolute return funds had their worst month of outflows in recent history, with £1.8bn pulled from the sector alone. These funds have now seen 21 consecutive months of outflows, with more than £10bn of investor money pulled during that time. These outflows coupled with investment losses means the sector has shrunk by a third over the past two years, from £80.6bn in March 2018 to £54.3bn today.
“Investors also parked their money in passives during the month, with almost £500m of inflows to trackers, presumably in a bid to benefit from rebounds in broad markets. This feels slightly counterintuitive as just after market falls is when active managers should shine, with the ability to weed out those companies that will never recover from those that have been unfairly dragged down with the market or are primed for a rebound post-crisis. Fund managers will be hoping that at least some of this move to passives might signal a holding space to stay in markets while investors select which funds to move their money into.”
