2021 UK Fund Flows Review: Summary
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Global growth rebounded to 5.5% for 2021, although the ongoing pandemic continued to act as a drag. The first lockdown of 2021 was introduced in early January, easing progressively from March to July. Delta appeared in the UK in April and was the dominant COVID variant by May. Omicron hit in December, showing we were not yet out of the woods.
It’s never going to be a year we remember fondly.
As for financial markets, the FTSE 100 started the year at 6,461 and finished at 7,385, while the MSCI ACWI was up 15% in dollar terms over the year. Ten-year gilt yields hit their low in July, at just a touch above 10 basis points (bps). From there they climbed to about 130 bps by year end—their highest since early 2019—as the year finished with a flattening of the yield curve, indicating increasing investor nervousness.
Fortunately, we saw nothing approached the meltdown of March 2020, when markets hit their nadir, and investors strapped on their crampons and climbed that wall of worry.
The following report summarises how investors have deployed their capital in UK mutual funds and ETFs over the year.
At the highest level:
Bond funds saw the largest inflows over 2021, taking in £13.6bn—broadly in line with what they netted in 2020. The difference is that other positive flows are more subdued, therefore pushing fixed income to the top of the flows table.
Net equity inflows were modest in contrast, at £1.8bn, compared with £26.7bn in 2020—about 7% of that of the previous year.
Mixed assets attracted £9.7bn—slightly more than double that of the previous year.
Money market funds saw outflows of £8bn over the course of the year. This contrasts with 2020, when they netted £36.1bn.
Alternatives rebounded to a degree, with inflows of £2.1bn, after the previous year’s outflows of £3bn.
Real estate remains deeply unloved, as investors pulled out £4.9bn, on top of the previous year’s £2.18bn of redemptions.
The large allocations to bonds may seem surprising at a time when we’re in an inflationary environment, with rates only expected to go one way, especially as most bond fund classifications have posted negative returns over the year (notable exceptions being inflation-linked bonds).
Chart 1: Asset Class Flows by Quarter, 2021 (£bn)
Source: Refinitiv Lipper
Quarterly View
Over 2020, investors had squirreled away a lot of capital in money market funds, and this flowed out (-£21.4bn) in Q1 2021. This seems to have taken some time to filter into other asset classes, with the largest positive flows being in Q2 (£16bn). The final quarter of the year looked very much like an inversion of the first, with money market funds taking £18.9bn as equities shed £4.37bn as investors became increasingly risk averse in an uncertain macro environment.
Active v Passive
The largest net gain for any asset class was for bonds (£13.6bn), with all but £553bn being scooped up by index-tracking funds. While passive equity funds attracted £5.5bn, their active peers suffered outflows of £3.7bn.
Lipper Global Classifications
Despite, at an asset class level, the largest flows going to bonds, Equity Global attracted almost half as much again: £19.8bn. Next was Mixed Asset GBP Aggressive (£9.8bn), although USD, GBP, and EUR, Bond Global classifications combined netted £10.7bn—the only bond classifications in the top 10.
At the other end of the scale, UK equities were heavily out of favour, as Equity UK shed £9.8bn, and Equity UK Income £8.2bn.
ESG
2021 was the year of the great ESG equity rotation, with equity ESG funds taking £34.9bn as their non-ESG equivalents lost £33.1bn. Bond flows between the two were split fairly evenly, and mixed asset ESG took almost double that of its non-ESG peers. This was impressive, although it was a smaller proportion than the previous year.
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The views expressed are the views of the author and not necessarily those of Refinitiv. This material is provided as market commentary and for educational purposes only and does not constitute investment research or advice. Refinitiv cannot be held responsible for any direct or incidental loss resulting from applying any of the information provided in this publication or from any other source mentioned. Please consult with a qualified professional for financial advice.
