August 19, 2021

Risk-Off July, With Cash Up and Equity Down

by Dewi John.

Money market fund flows dwarf all other asset classes, as investors face slowing recovery

 

Asset Class View

  • Money market funds netted almost £7bn, with bond flows taking £1.51bn and mixed assets £968m. Meanwhile, equities shed £276bn.

Active v Passive

  • The trend to passive equities reversed in July, as passive flows went negative
    (-£550m), while active equities took £274m. In fixed income, passives dominated flows by £1.29bn to £227m active.
  • Bond ETFs and passive mutual funds took £637m and £651m, respectively, while most passive equity outflows (-£477m) were from ETFs.

Classifications

  • Money Market GBP took the largest flows—£7bn.
  • The second largest allocation was to Equity US (£1.72bn). Flows here were overwhelmingly to active funds—£2.21bn versus -£498m passive flows for the classification.
  • The largest outflows were from Equity Global ex UK, at -£4.04bn. Equity UK Income and Small & Mid Cap redemptions combined came to £1.82bn.

ESG Flows

  • July saw a rotation of £4.41bn into ESG equity funds, shedding £4.67bn from ‘conventional’ ones. ESG bond funds took £521m of the £1.52bn total.

Asset Manager View

  • SPW saw the largest promoter flows, as its Multi-Manager range of equity funds saw £3.5bn of transfers from Scottish Widows funds.

 

Flows by Asset Class

Chart 1: Asset Class Flows, Active and Passive, July 2021 (£bn)

Source: Refinitiv Lipper

 

July was an unambiguously “risk-off” month, with money market funds taking a sliver less than £7bn, bonds £1.5bn, and equities seeing outflows of £276m, as markets faced up to slowing growth and the realisation that any post-COVID recovery was less of a bounce and more of a teetering game of hopscotch across dislocated supply chains.

There has been a persistent rotation from active to passive management in equities over the past months. July saw this reversed, with actives taking £274m and passives shedding £550m. Both active and passive bond funds were in positive territory to the tune of £227m and £1.29bn, respectively.

Alternatives have made an unusually strong showing, with the top four money-takers netting £763m across alternative credit focus, multi strategy, and global macro classifications.

 

Chart 2: Passive Asset Class Flows, Mutual Funds v ETFs, July 2021 (£bn)

Source: Refinitiv Lipper

 

A very similar trend in passive bond flows in both July and June, with ETFs and passive mutual funds dividing up the fixed income cake between them—£637m and £651m (July) and £591m and £754m (June), respectively.

Most passive equity outflows were from ETFs (-£477m) versus -£73m for mutual funds.

 

Flows by Classification

Chart 3: Largest Positive Flows by Refinitiv Lipper Global Classification, July 2021 (£bn)

Source: Refinitiv Lipper

 

Money Market GBP took the largest flows in July (£7bn), with Aviva Investors winning the largest single allocation, with £1.24bn into its Sterling Liquidity 9. Despite this being a risk-off month, five out of the top 10 classifications were equity, totalling £5.28bn.

 

Source: Refinitiv Lipper

The second largest allocation was to Equity US (£1.72bn). The largest money-taker here was SPW Multi-Manager North American Equity Fund Q Inc (£1.93bn). This is the result of a transfer of assets from Scottish Widows to SPW multi-manager equity funds—covered in promoter flows, below. Flows for the classification have been overwhelmingly to active funds—£2.21bn versus -£498m passive.

 


Source: Refinitiv Lipper

 

Within the third largest money-taker (Equity Global, at £1.69bn), the top three fund classes—which took £938m—were all ESG funds.

 

Chart 4: Largest Negative Flows by Refinitiv Lipper Global Classification, July 2021 (£bn)

Source: Refinitiv Lipper

 

While Equity UK was in the black to the tune of £410m, Equity UK Income and Small & Mid Cap combined redemptions came to £1.82bn. However, the largest outflows were from Equity Global ex UK, at £4.04bn. However, a large portion of has been as a result of a SW multi manager liquidation and reallocation to several SPW funds (see Flows by Promoter, below).

Flows from Absolute Return GBP Low and Medium (combined -£371m) indicate the ongoing unpopularity of the Target Absolute Return IA sector, following on from June’s outflows of £867m exiting Absolute Return GBP Low in June.

 

ESG Flows

Chart 5: ESG Asset Class Flows, July 2021 (£bn)

Source: Refinitiv Lipper

 

As is the case most months, equities took the majority of ESG funds, with a rotation of £4.41bn into ESG equity funds and negative £4.67bn from “conventional” funds. ESG bond funds are still playing catch-up on their equity peers, taking only £521m of the £1.52bn total.

 

Source: Refinitiv Lipper

Despite the domination of active equity flows in July, the largest equity ESG flows went to ASI Sustainable Index World Equity Fund B1 Acc—a passive fund (£1.08bn). While the second-placed ACS Climate Transition World Equity X0 GBP Acc GBP took £404m, ACS ESG equity funds combined took £1.41bn.

 

As can be seen from the table below, BlackRock ICS Sterling Liquid Environmentally Aware share classes dominated ESG money market flows.


Source: Refinitiv Lipper

 

Flows by Promoter

Chart 6: Largest Positive Flows by Promoter, July 2021 (£bn)

Source: Refinitiv Lipper

 

There were £3.5bn of inflows into the SPW Multi-Manager range of equity funds, with the largest being more than £2bn into SPW Multi-Manager North American Equity Fund from the (liquidated) SW Multi-Manager International Equity Fund.

Unsurprisingly, given its domination of money market and ESG equity flows in July, BlackRock’s largest money-takers are equity and money market funds, with net flows of £2.41bn.

 


Source: Refinitiv Lipper

Third-placed Northern Trust owes its £1.5bn flows this month almost entirely to money market funds, as the table below indicates.

 


Source: Refinitiv Lipper

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