Long-term funds attract £1.82bn, with £2.37bn Money market redemptions
Asset class view
- Money market funds saw the largest outflows, of £2.37bn
- The strongest inflows went to mixed-assets funds, which netted £842m, followed buy bonds at £804m
Active v passive
- Passive bond funds attracted £1.06bn while their active peers shed £253m
- Passive bond mutual funds saw inflows of £1.6bn, while bond ETFs suffered outflows of £541m
Classifications
- Equity Global was the top money-taking classification (£1.11bn), £946m of which went into passive vehicles
- UK equity funds saw combined outflows of £1.45bn
Sustainable fund flows
- Equity funds saw the largest sustainable inflows in May, taking in £1.07bn, as their conventional peers saw outflows of £520m
- Fixed income was the only asset class to see sustainable outflows (£512m), while conventional bond funds attracted £1.32bn
Asset manager view
- BlackRock was the top-selling fund manager in May, netting £4.3bn
Flows by Asset Class
Chart 1: Asset Class Flows, 36 Months, to May 2023 (£bn)
Source: LSEG Lipper
May was somewhat subdued in terms of flows, with a total of -£102m across all asset classes. Leaving out the negative flows for cash (£2.3bn), things look a little healthier, with positive flows of £2.2bn. Investors are, of course, mulling the relative risks of inflation and recession, as the UK just slipped the hip around the latter in Q1, posting slight GDP growth, while the Bank of England’s Monetary Policy Committee stuck another 25 basis points (bps) on base rates.
My best guess is that these rate rises will eventually have the desired effect—if only by pushing the UK into recession, as higher mortgage rates for consumers and a greater cost of capital for corporates eventually take enough of a bite out of growth to turn it negative. That will make high-grade bonds look a lot more attractive, and they have indeed proved the most popular asset class this month, taking £1.18bn.
Chart 2: Asset Class Flows, Active and Passive, May 2023 (£bn)
Source: LSEG Lipper
In April, when active bonds outsold passives for the first time in a long time—by £1.43bn to £1.01bn—I pondered whether this indicated that investors believe the market was settling and were starting to think of their fixed income allocations in a more strategic way. May’s figures would suggest I pondered wrong, as passive bond funds took £1.06bn while their active peers shed £253m.
A good month for mixed-assets funds, which took £842m. Some £51m of this went to passives—small enough indeed, but it’s normally a smaller proportion than this, as the asset class is hugely biased to active money. Meanwhile, equity funds saw inflows of £547m, split £417m to £130m, passive to active respectively, and flipping April’s trend, which saw active funds take the bulk of the money. And, despite increasing talk that this market may favour alternatives, investors have yet to be convinced, with these funds seeing £239m of redemption overall.
Chart 3: Passive Asset Class Flows, Mutual Funds v ETFs, May 2023 (£bn)
Source: LSEG Lipper
Excluding money market funds, passives took £1.53bn to active funds’ £293m. Most of the passive action was in the fixed income space, with passive bond mutual funds seeing inflows of £1.6bn, while bond ETFs were in the red to the tune of £541m. Index tracking equities were a little more evenly spread, with mutual funds taking £250m and ETFs £167m.
Flows by Classification
Chart 4: Largest Positive Flows by LSEG Lipper Global Classification, May 2023 (£bn)
Source: LESG Lipper
Another decent month for Equity Global, which attracted £1.11bn, £946m of which went into passive vehicles, with M&G and Schroders netting more than half of this from the top four funds in the table below. Equity Global Income also had a good month (£594m), with investors hunting dividend payments on foreign shores, if not these ones. Equity Emerging Markets Global also saw inflows of £459m into passive funds, with £72m of active money going the opposite way.
Source: LESG Lipper
As was the case the previous month, Mixed Asset GBP Flexible and Aggressive continue to dominate mixed-assets flows, taking £1.87bn between them, squeezing out Balanced and Conservative funds. This is certainly an approach that worked well in 2022, as bonds suffered considerable losses, but remains to be seen if it is an approach that will work this year.
Source: LESG Lipper
Meanwhile, investors seem to be harkening to the message that government debt has an attractive risk/return profile, by piling into UK gilts to the tune of £945m. Interesting, as well, to see Bond GBP Inflation Linked take £356m, as these funds saw large losses last year—smashed by duration, despite the inflationary environment. If rates are stabilising with inflation remaining elevated, now may indeed be the time to allocate to this part of the market.
Chart 5: Largest Negative Flows by LSEG Lipper Global Classification, May 2023 (£bn)
Source: LESG Lipper
Mixed Asset GBP Balanced suffered outflows of £646m, but—as is so often the case—the main negative news is for UK equities, with the three main classifications comprising this all in the bottom 10 table, shedding a combined £1.45bn.
What’s also of note, in contrast to Chart 4 (inflows), is the preference for GBP-denominated fixed income assets. The yield on 10-year Treasuries at the start of May being circa 3.35%, compared to the 10-year gilt’s circa 3.7%, indicates there’s more on offer, but UK rates may have further to go, given the stickier inflation, so there is arguably more duration risk in the UK.
Sustainable Fund Flows
Chart 6: Sustainable Asset Class Flows, May 2023 (£bn)
Source: LSEG Lipper
Equity funds saw the largest sustainable inflows in May, taking in £1.07bn, as their conventional peers saw outflows of £520m. Meanwhile, the boot was on the other foot with bond funds, as this was the only asset class to see sustainable outflows (£512m), while conventional bond funds attracted £1.32bn. Why this should be isn’t straightforward, but sustainable bond funds tend to suffer in relative terms when there is a strong rotation from active to passive, as most bond ESG is active money. There is a long-running complaint about the dearth of sustainable fixed income passive supply, so this would seem to be a significant factor, though others will likely be in play.
Source: LESG Lipper
As a result of sustainable bonds being in redemption, plus the increasingly sluggish sales of sustainable fixed income, money market funds were the second-best selling sustainable asset class, attracting £402m for the month, despite the asset class overall seeing the heaviest redemptions at this time.
Source: LESG Lipper
The Sustainable Fund Flows section has a narrower and stricter focus than those which indicate some form of ESG strategy in their fund documentation—to a smaller group of sustainable funds, defined as all SFDR Article 9 funds plus all Lipper Responsible Investment Attribute funds reduced to those containing indicative sustainable keywords in the fund name.
Flows by Promoter
Chart 7: Largest Positive Flows by Promoter, May 2023 (£bn)
Source: LSEG Lipper
BlackRock was the top-selling fund manager in May, netting £4.3bn over the month, with top-selling funds across money market, mixed-assets and bond—but unusually no equity. Nevertheless, takings were broadly distributed, with money market funds attracting £1.54bn, mixed-assets £1.14bn, bonds £892m, and equity £738m.
Source: LSEG Lipper
As was the case in April, M&G took second place, with net inflows of £2.4bn. The firm’s equity funds saw the largest inflows (£1.68bn), followed by bonds (£583m).
Source: LSEG Lipper
