by Jake Moeller.
The tentative recovery in UK fund flows continued for a fourth consecutive month, although October was well down on September (+£7 billion). This month, there was a shift out of risk assets in long-term funds as bond funds took the lion’s share of assets (+£2.5 billion). Given the ongoing low-interest rate environment this may come as a surprise to investors, however the extended credit cycle remains supportive.
Given that the UK is now facing an uncertain election outcome (and the Brexit outcome is contained therein), it appears that overseas credit may be preferable to some investors. Mixed Asset funds were the only other winner collecting £1.3 billion for the month.
Real estate funds which are suffering from the potential consequences of Brexit due to their lack of liquidity, witnessed ongoing outflows of £330 million. Alternatives too, maintained their well-established trend with their 16th consecutive month of outflows with -£2.1 billion in October.
Money market products saw their first net outflow after three positive months of -£1.3 billion. It is possible that some of this has been used to fund the positions in credit and short-dated bond funds which have proven popular in October. Most of the outflow was from Money Market GBP with some rotation into Money Market USD.
Graph 1: Estimated Net Sales by Asset Type, October 2019 (£ billion)
Looking at long-term (rather than money market) mutual funds, Bond USD (+£890 million) was the most popular sector, followed by Mixed Asset GBP Balanced (+£750 million). Equity US (+£640 million) was the third best-selling long-term sector, followed by Money Market USD (+£450 million).
There does seem to be a pattern this month of some movement away from UK currency assets likely due to ongoing Brexit uncertainty and the election.
Graph 2: Ten Top Sectors, October 2019 (£ billions)
At the opposite end of the spectrum, the highest outflow was from Money Market GBP (-£1.4 billion) followed by Alternative Equity Market Neutral (-£830 million) and Equity Global (-£490 million).
Large movements in Money Market funds are often commonly used to fund other positions but Real Estate UK is an investment which is feeling the uncertainty of Brexit as investors eschew this less liquid asset class.
Graph 3: Ten Bottom Sectors, October 2019 (£ billions)
HSBC was the best-selling fund promoter for October overall, with net sales of £1.2 billion, ahead of Royal London (+£1.05 billion) and Insight (+£0.62 billion).
Table 1: Ten Best-Selling Promoters, October 2019 (£ billions)
The 10 best-selling long-term funds gathered at the share class level total net inflows of £2.3 billion for October.
Contrary to the general fund-flows trend seen for the month, there is a surprising number of equity funds in the top ten best sellers.
Table 2: Ten Best-Selling Long-Term Funds, October 2019 (£ millions)
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