Total passive flows are £2.66bn, while active funds see £2.03bn outflows
Asset class view
- Bond funds overall had the largest net inflows, taking in £2.14bn
- Equity funds saw the largest outflows for June (£2.3bn), while over the first half money market funds had the most redemptions
Active v passive
- The most successful passive asset class in June was bonds, with inflows of £2.8bn
- Passive equity mutual funds suffered outflows of nearly £500m, with their equity peers attracting about $300m
Classifications
- Mixed Asset GBP Aggressive Funds were the best-selling classification, taking £2.6bn
- UK equity funds saw combined outflows of more than £2bn
Sustainable fund flows
- There were outflows from sustainable bonds into their conventional peers (-£374m and £2.51bn)
- The opposite occurred in the equity space (£351m and -£2.7bn)
Asset manager view
- BlackRock was the top-selling fund manager in June, netting £4.4bn
Flows by Asset Class
Chart 1: Asset Class Flows, 36 Months, to June 2023 (£bn)
Source: LSEG Lipper
As we’re midway through the year, it’s instructive to look at flows year to date.
June saw the fourth consecutive month of redemptions for alternatives funds, shedding a cumulative £1.73bn over the first half of the year. Wasn’t this supposed to be the year for alternatives? The other asset class tipped at the start of the year was bonds, and investors seem more convinced, with these funds having attracted £10.26bn over H1—the most successful asset class in terms of inflows. This is likely a result of both institutions topping up their strategic asset allocations following severe fixed income losses in 2022, plus the hope that with yields expanding and expectation that inflationary pressures (and so pressures on base rates) were easing, there was money to be made here. While the latter June have proven a tad premature for early movers, it’s a narrative that’s gained traction.
Investors have also favoured mixed investment funds over the period, which have taken in £7.01bn. Equities, on the other hand, have not been so favoured, with outflows in four of the past six months, and redemptions of £8.28bn over the half year.
The largest outflows year to date, however, have been from money market funds, which have shed £41bn. While there has been lots of positive talk about the enhanced yield on cash, given higher base rates, it seems likely that the first half of the year has been characterised by a reversal of the flood tide into cash in the wake of last year’s mini-budget. It’s worth nothing that Money Market GBP funds are an outlier here, as other money market funds across Europe have seen inflows over the year to date. This is driven by an inverted yield curve, which means that investors are getting a better yield on cash than they are on government bonds. The effect of this must now surely be tailing off, however, with small (£122m) positive flows for June.
Chart 2: Asset Class Flows, Active and Passive, June 2023 (£bn)
Source: LSEG Lipper
The ABCs for June are broadly the same as for May, with largely active outflows for alternatives (-£590m), passive inflows (£2.8bn), and active outflows (-£657m) for bonds, and to all intents and purposes, nothing for commodities. That gives bond funds the largest overall positive flows (again) of £2.14bn. With base rates looking like they are approaching their peak, that may be a wise call, with duration risk for longer-dated securities potentially topping out. June was also a good month for mixed assets, which saw £1.32bn of inflows, almost all of which went to active funds.
On the other side of the balance sheet, passive equity funds suffered £197m of outflows, while their active peers shed £2.1bn. In the 2023 great hokey-cokey of whether the global economy is heading into recession or not, June seems to be one of those months that investors, on balance, answer a resounding ‘yes’.
Lastly, as something of a codicil, money market flows are either top or bottom of the pile on each month. In the almost three years I’ve been running this report, I’ve not seen the muted flows (£122m) of this June.
Chart 3: Passive Asset Class Flows, Mutual Funds v ETFs, June 2023 (£bn)
Source: LSEG Lipper
A good month for both passive bond mutual funds (£1.89bn) and their ETF equivalents (£904m). While passive equity mutual funds shared in the pain of the asset class overall (-£498m), their ETF peers did rather better, netting £302m. Overall, passive vehicles took in £2.66bn in June, with mutual funds taking the better half of this, albeit by a margin, at £1.42bn.
Flows by Classification
Chart 4: Largest Positive Flows by LSEG Lipper Global Classification, June 2023 (£bn)
Source: LSEG Lipper
It was a great month for Mixed Asset GBP Aggressive Funds, which took in £2.6bn. Some £1.92bn of this went to four BlackRock share classes, which top the table directly below. It seems something of an anomaly in a market where investors are dumping equities and buying bonds that we should also see the most equity heavy mixed asset sector outselling their more cautious peers. Mixed Asset GBP Flexible is the next best-selling MA sector (£110m), and that has an even higher average equity exposure than Aggressive—something I looked at recently here.
Source: LSEG Lipper
The next best-selling classification was Bond GBP Government (£1.87bn), with Bond USD Government (£409m) also proving popular. The assets here went overwhelmingly to passive funds. It seems likely that investors are viewing the decent yield from govvies as being attractive relative to high-grade corporates for the risk and are placing their bets accordingly. Likewise with Bond GBP Inflation Linked (£189m). This classification was a basket case last year, as inflation protection was overwhelmed by duration risk. But, if inflation remains relatively elevated but unlikely to head further up, linkers may begin to look attractive.
Source: LSEG Lipper
Lastly, despite the negative month overall for equities, Equity Global pulled in £1.26bn, with Equity Global Income garnering a further £146m—the only two equity classifications to make the top 10.
Chart 5: Largest Outflows by LSEG Lipper Global Classification, June 2023 (£bn)
Source: LSEG Lipper
I do sometimes with that the unremittingly negative tide for UK equities would turn, not so much out of any dubious sense of patriotism, but just for the chance to tell a different story. This month isn’t it. The three UK equity classifications are all in the top-10 outflows table: topped by Equity UK (£1.33bn, £838m of which is passive); Equity UK Small & Mid (£419m); and Equity UK Income (£328m). The latter is despite investors’ pivot to equity income in search of yield over the past 18 months. As seen above, they’re seeking that globally rather than in the UK, despite the latter in general delivering a higher average dividend payout. What’s interesting is the withdrawal from its US equivalent (at -£175m).
As mentioned above, mixed asset aggressive is very much flavour of the month. Mixed Asset GBP Balanced, on the other hand, has lost £692m, with Mixed Asset GBP Conservative also shedding £159m. Most of the £361m withdrawn from Absolute Return GBP High is from two funds. Similarly, the Healthcare outflow (£269m) sparked my interest, but all this and more comes out of one share class.
Sustainable Fund Flows
Chart 6: Sustainable Asset Class Flows, June 2023 (£bn)
Source: LSEG Lipper
Two trends that continue in an amplified form from the previous month—and we note as longer-term trends—are the outflows from sustainable bonds and into their conventional peers (-£374m and £2.51bn), while the opposite is happening in the equity space (£351m and -£2.7bn). The former seems bound up with the shift from active to passive fixed income, in a world where most sustainable fixed income is actively managed. Sustainable equity flows have proven resilient despite underperformance (especially last year). With growth’s rebound this year, it’ll be interesting to see if that underperformance is beginning to reverse, and we’ll be looking at this in the quarterly ESG equivalent of this report, imaginatively titled Everything Green Flows, out within the next fortnight.
Source: LSEG Lipper
Lastly, unlike previous years, mixed asset flows continue to disappoint. As I argue here, one factor has been the large provider-specific effect among ESG MA funds, and their underperformance in 2022. But there’s a larger trend here that’s observable globally, and we’ve yet to see flows turn round, despite a performance recovery in the relevant providers.
Source: LSEG 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, June 2023 (£bn)
Source: LSEG Lipper
BlackRock was the top-selling fund manager in June, netting £4.4bn over the month, slightly more than the previous month. Best-selling sectors were mixed asset (£2.22bn), equity (£1.45bn), and bond (£1.34bn).
Source: LSEG Lipper
Abrdn came second, attracting £1.87bn. This was mainly accounted for by £1.64bn inflows to money market funds, as reflected in the table overleaf.
Source: LSEG Lipper
