September 21, 2021

Emerging Market Equities Take the Top Slot, Despite Equities Going Negative

by Dewi John.

Emerging markets were the only equity group to appear in the top 10 classifications.

 

Asset Class View

  • Money market and equity funds shed £2.2bn and £528m, respectively, with mixed assets (£1.5bn), bond (£1.5bn), and alternatives (£665m) gaining.

Active v Passive

  • Almost all equity net outflows were on the active side, with little overall movement on passive, while bond inflows were split fairly evenly between the two strategies.
  • Equity passive mutual funds took in £327m, while their ETF counterparts shed £297m. Bond ETFs attracted £425m of the passive bond total of £517m.

Classifications

  • Equity Emerging Markets Global was the top money taker (£858m), despite being the only equity classification in the top 10.
  • Bond Global USD, GBP, and EUR netted almost £1.6bn between them.

ESG Flows

  • While positive ESG equity flows were muted relative to the previous month’s £4.4bn, they still took £881m, compared to £1.4bn outflows for non-ESG equity.

Asset Manager View

  • Insight came top of August’s inflow table, attracting £1.4bn of assets, followed by Vanguard (£1.4bn) and Royal London (£777m).

 

Flows by Asset Class

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

Source: Refinitiv Lipper

 

July produced large movements into money market funds, at just under £7bn, and August sees that reversed. But rather than this being to the advantage of equities, as is often the case, they also witnessed net outflows of a nudge more than £1bn.

Instead, the winners have been mixed assets (£1.58bn), bonds (£1.47bn), and alternatives (£658m). Meanwhile, real estate continues its unbroken negative run, this month seeing £618m head out of the door. To wrap a little context around this, current real estate AUM is just under £40bn, and the sector has shed £6.66bn over the past year (compared to a £9.43bn contraction over five years) despite the gating of many funds over the period.

Overall, the largest swings have been in active money. Given the largest asset class shifts have been in mixed assets and money markets—which are almost exclusively active plays—this is no surprise, but significant allocations away from some developed market active equity positions have contributed to this.

 

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

Source: Refinitiv Lipper

 

Fixed income ETFs took £425m of the £527m passive total for the asset class this month, while passive equity mutual funds netted £327m inflows as their ETF counterparts experienced £297m, resulting in a small £30m positive flow for passive equity vehicles.   

 

Flows by Classification

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

Source: Refinitiv Lipper

 

While top-level asset flows don’t exactly scream “risk-on”, the most popular classification for August was Equity Emerging Markets Global (£858m), with the top money takers in this classification being dominated by passive funds (see table below). That said, it’s notable that this is the only equity classification in the top 10—somewhat unusual.

Source: Refinitiv Lipper

Eight out of the top 10 were either mixed assets or, as with second-placed Bond Global USD (£708m), fixed income. Bond Global GBP and Bond Global EUR took £558m and £311m, respectively, totalling £1.57bn for global bonds across the three currencies. Bond GBP Short Term also continues its positive run, indicating that fixed income investors are reducing portfolio duration as inflationary fears persist.

Source: Refinitiv Lipper

Most of the £686m that alternatives have attracted this month has been to Alternative Credit Focus. Of this, almost every last cent has gone into ABS-based funds.

 

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

Source: Refinitiv Lipper

 

Other than large negative money market flows, the most notable thing about August’s classification outflows is the Equity UK (-£1.34bn) and Equity US (-£764m). More than half of the UK total can be chalked down to one actively managed fund.

Bond GBP and USD Inflation Linked have seen outflows of £250m and £232m, respectively, despite the former having outperformed Bond GBP Government by about eight percentage points year to date, and the inflationary concerns indicated by the flows to Bond GBP Short Term.

 

ESG Flows

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

Source: Refinitiv Lipper

 

ESG equity flows being positive while non-ESG are negative is a well-established trend—although something that has yet to become embedded in other asset classes (£881m versus £1.41bn). For instance, there are some strong ESG players in the mixed assets world, but August sees non-ESG flows outstrip their “green” counterparts by £1.37bn to £189m.

All the top five ESG equity money takers this month are actively managed (see table below), and you have to drop down to the sixth-placed iShares MSCI USA SRI UCITS ETF GBP Hedged (Dist) (£63m) for passives to make a showing.

Source: Refinitiv Lipper

All the top five sustainable bond sellers this month are global bonds, albeit of varying denominations. This is par for the course, with investors seeming to prefer their fixed income ESG allocations this way, rather than more geographically focused. The sixth- and seventh-placed share classes are both of short-dated funds (Edentree Responsible and Sustainable Short Dated Bond Class B Inc and Royal London Investment Grade Short Dated Credit Z Inc), although netting a relatively modest £36m between them.

Source: Refinitiv Lipper

 

Flows by Promoter

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

Source: Refinitiv Lipper

 

Insight tops the table this month (£1.42bn), followed by Vanguard (£1.4bn) and Royal London (£777m). Insight’s biggest draws by asset class were money market (£647m), bond (405m), and alternatives (£381m).

Source: Refinitiv Lipper

Meanwhile, Vanguard’s take for the month was well spread between equity (£533m), mixed assets (£475m), and bond (£399m).

Source: Refinitiv Lipper

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