February 8, 2021

Investing in Interesting Times

by Dewi John.

2020 UK Fund Flows Review: Summary


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The UK started 2020 with a shiny new majority government, committed to delivering Brexit. For much of that year, the uncertain implications of this have weighed on financial markets. In any given year, that would be enough. But then, of course, there was—and is—COVID. In March, markets went into freefall, oil prices went negative—even gold sold off—before markets rallied as governments and central banks committed to do whatever it took to prevent economic collapse.

This double whammy continued and exacerbated the FTSE’s long run of underperformance, and the UK’s post-trough recovery has lagged most major markets.

Despite it being an annus horribilis on steroids, most UK fund market asset classes took in money, with £75.9bn more flowing into the market than had seeped out. The biggest gainers were actively managed Money Market funds, followed by passive equity vehicles. Those finishing in negative territory were Alternatives and Real Estate.


Chart 1: Asset Class Flows by Quarter, 2020 (£bn)

Source: Refinitiv Lipper


Asset Class

The first quarter saw fund redemptions from all asset types except for Money Market, totalling £17.1bn. Despite this negative trend, Money Market products were able to gather inflows of £8.9bn. The following quarter, as markets rebounded, £17.2bn was reinvested in return-seeking funds. Indeed, every quarter except the first was positive for return-seeking fund flows—indicated by the stacked bars, excluding dark blue portion (representing Money Market funds). Renewed confidence in equities in particular is indicated by the strong flows to those funds in Q4—£27.1bn in total.

Active v Passive

Active management is almost the only game in town for Money Market funds, with nearly as great a dominance in Mixed Assets. By that metric it has been a good year for active. However, looking at Equity and Bond flows, the story is rather different. Active equity funds saw net outflows of £2.92bn, with passives drawing in more than 10 times that amount (£29.98bn). And, while actively managed bond funds saw positive flows of £3.15bn, bond trackers took in more than three times that (£10.75bn).


Some £3.09bn, or 28.7%, of passive bond flows (£10.75bn) went to ETFs. While equity ETFs’ share of the passive cake is somewhat smaller—£2.3bn of £29bn, or 7.7% of the total—they gained more market share, particularly towards the end of the year. By way of comparison, equity ETFs took almost as much as active equity funds shed over the year.

Lipper Global Classifications (LGCs)

Given flows at asset class level, it’s no surprise that Money Market GBP saw the largest sales, taking in £35.5bn. Second-placed Equity Global netted £12.37bn, with active managers attracting £9.55bn of this—a reversal of the trend to passive equities. Dollar-denominated global fixed income funds have proven popular, with Bond Global USD, Bond Global Corporates USD and Bond Global High Yield USD netting £11.3bn between them. It’s also been a decent year for the three GBP-denominated mixed asset Lipper Global Classifications, which attracted £10.4bn.

Equity UK Income suffered the worst outflows (£6.8bn), with equity income sectors globally generally faring badly. The three mixed asset Absolute Return GBP classifications also saw a combined negative flow of £8.3bn.


Except outflows (£47m) from Alternatives during Q3, ESG flows were positive for all asset classes throughout 2020. ESG dominates fund flows in Mixed Assets, with net ESG assets of £4.94bn, and non-ESG assets at negative £235m. ESG also took in the most equity assets: £14.93bn, compared to £11.8bn for non-ESG. Equity ESG is still a predominantly an active play, but the number of indexed offerings is steadily increasing. While ESG hasn’t acquired the same dominant position in bond flows, it is taking increasing market share, in both absolute and relative terms—£4.84bn out of a total of £13.87bn (35%). For 2019, those figures were £2.37bn out of £23.32bn (10.1%).


Refinitiv Lipper delivers data on more than 330,000 collective investments in 113 countries. Find out more.


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.


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