According to Investment Week September saw the largest redemptions on record from UK focused funds, with equity portfolio taking the biggest hit. The latest Refinitiv Lipper UK Fund Flows report found that investors pulled a net £26.6bn out of UK funds in September, a bigger withdrawal than during the global financial crisis or the March 2020 Covid-19 selloff.
All asset classes were in negative territory. Equities took the biggest hit, with £13.6bn in redemptions, followed by alternatives (£5.1bn) and bonds (£4.7bn).
Active fund redemptions of £25.2bn were almost ten times those for passives (£2.6bn). Meanwhile, it was a better month for passive bond funds, with positive flows of £1.6bn to £475m for mutual funds and ETFs respectively.
Despite institutions’ selloff of UK government bonds after the mini-budget on 23 September, Bond GBP Government was the best-selling Refinitiv classification, with £834m net inflows. Alternative Credit Focus, however, shed £4.7bn, mainly from funds invested in ABS.
Equity ESG funds saw £3bn of redemptions, compared with more than £10bn from their non-ESG counterparts. ESG negative flows were almost £9bn, while their conventional peers saw nearly £19bn in outflows.
Morgan Stanley and HSBC were the two largest-selling promoters, with the flows of both dominated by money market funds.
Europe-domiciled funds suffered their worst month since March 2020. Although investors sold off heavily during the depths of the global financial crisis in 2008 and during Covid-19 in March 2020 - when even gold sold off - fund investors did not react as ‘dramatically’ then as they did this September.
‘What is different this time,’ the report’s authors suggested, ‘ is the rapid ratcheting of rates in a high-inflation environment. It is possible that, in the retail world at least, investors are cashing in to reduce their liabilities - not least mortgages - as debt service charges spiral, along with day-to-day costs. Unfortunately, fund share classes are mute on this issue, though things will likely become more transparent over the coming months.
Links: https://www.investmentweek.co.uk/news/4058655/refinitiv-uk-funds-suffer-largest-outflows-record-september
https://lipperalpha.refinitiv.com/reports/2022/10/monday-morning-memo-european-fund-flow-trends-september-2022/