Just as 2023 hasn’t brought the long-awaited market recovery, the first quarter has been disappointing for UK fund flows UK funds too. For the first three months of the year, £2.26 billion was withdrawn from equity strategies, and around £8 billion for active strategies overall.
In March, equity funds saw slightly lower outflows than the months before, at £641 million, Morningstar’s most recent analysis shows us – and UK equity funds were among the most unpopular, both on a monthly and quarterly basis. Still, the current outflows appear muted when compared to the numbers from last September, seen in the chart below.
Fixed income remains the only category with inflows of any significance. Over the past three months, investors have been willing to invest £2 billion into the category on an aggregate level, despite a £495 million outflow in March.
In fact, all the major asset classes saw withdrawals in March. Don’t let the apparent low quarterly net flows from money market funds fool you either – this category has been the most volatile of all, according to our research. According to Morningstar’s associate manager research analyst Jack Fletcher-Price, the volatility could be attributed to the changing expectations around interest rates.
If we look at active strategies, a total of £4.4 billion was withdrawn in March alone. This brings the 2023 total up to about £8 billion in outflows for active funds.
Notably, it was a bad month for Royal London. Its Japan Equity Tilt fund had the largest outflows both last month (£861 million) and overall (£864 million), followed by two money market funds: Short Term Fixed Income (£662 million in March, £745 million in Q1) and Short Term Fixed Income Enhanced, the third most unpopular fund in March and fourth most unpopular this year (only beaten by LF Ruffer Absolute Return which has seen £670 million in outflows over the past three months, despite not making the top five most unpopular even once this year).
Overall, Royal London saw its second largest outflow in over five years last month, at £1.44 billion (and £928 million over the quarter).
Meanwhile, March brought outflows for the first time since September last year, but they were marginal at £279 million. Sustainable funds have still managed to attract £796 million this year, compared with £6 billion in outflows for funds without a sustainable mandate.
In March, Global and US Large-Cap Blend strategies received the largest deposits, at £966 million and £777 million respectively. These flows mostly went to index tracker funds, which fits with our list of top funds for inflows, where passive strategies dominated. Another Royal London fund made an appearance here: Short Term Money Market with £279 million in inflows. Next up were HSBC FTSE All-World Index and iShares North American Equity Index with just over £200 million each. On a quarterly level, these two funds have attracted around £600 million in investments each.
However, UK Equity categories remained unpopular, with both UK Large-Cap Equity and UK Equity Income firmly fixed in the bottom five for the past months. So far this year, they have seen £2.2 billion and £1.4 billion in outflows respectively. And the former of the two saw investors withdraw almost a million in March alone.
Sticking with fund houses, while Royal London took the hardest hit in March, its figures were not quite at the levels of Baillie Gifford. The asset manager famed for its growth funds has seen redemptions of £1.7 billion in Q1 as investors don’t seem quite ready to jump back into its strategies.
This attitude was also shown towards Fundsmith, which featured among top outflows despite a strong start to 2023.
Meanwhile, index fund providers like BlackRock and Vanguard saw sizeable inflows, the latter attracting the most in March (£463 million), making it the most popular fund house this year with £681 million in inflows so far.
