October 24, 2023

Everything Flows, September ’23: Equities Go into Reverse as Rates Spike

by Dewi John.

Passive bond flows remain strong, despite poor macro environment

Asset class view

  • Bond funds have enjoyed the largest year-to-date inflows, at £11.59bn.
  • Equities saw the heaviest redemptions, at £1.62bn.

Active v passive

  • Passive funds in total saw inflows of £2.06bn, while active funds suffered outflows of £5.36bn.
  • Passive bonds (£1.58bn) and equities (£516m) enjoyed significant inflows over the month.


  • Mixed Asset GBP Aggressive retains its number-one slot for the second consecutive month, netting £1.13bn.
  • Sterling bond strategies were popular, as Corporates, Government, and Inflation Linked took £1.53bn between them.

Sustainable fund flows

  • Total sustainable flows were £1.61bn, as conventional funds saw outflows of £4.92bn.
  • The rotation from conventional to sustainable equity funds continues (at £1.19bn/-£2.81bn).

Asset manager view

  • BlackRock was the top-selling fund manager, netting more than £5bn.

Flows by Asset Class

Chart 1: Asset Class Flows, 36 Months, to September 2023 (£bn)

Source: LSEG Lipper


This was supposed to be the year for bonds. Shame that no-one told the bond market. September saw yields creep further up to pre-financial crisis highs on both sides of the Atlantic. This begs the question: when is a good entry point? Spoiler alert: it wasn’t January 1. For the first three quarters of the year, UK market bond funds are more or less flat (at -0.09%), as rising rates have continued to undermine fixed income portfolios. Treasury yields rose by about half a percent in September alone. Money market funds have delivered 2.95%, more or less in line with equity funds.

Is it the Fed signalling higher for longer that’s having this effect, as the market slowly digests this unpalatable possibility, or is it the supply/demand dynamics of quantitative tightening? Both are plausible and will likely continue to be a drag on fixed income returns.

Lacklustre returns, however, haven’t deterred flows to bond funds, which stood at £11.59bn for Q1 to Q3. Over the same period, investors have pulled £15.25bn from equity funds. Year-to-date, then, £58.43bn has been redeemed from the UK fund market. Even if you discount the £54.22bn of money market redemptions, the remaining £4.21bn is still significant. Only bonds and mixed-assets, at £4.99bn, are in the black.


Chart 2: Asset Class Flows, Active and Passive, September 2023 (£bn)

Source: LSEG Lipper


There’s a lot of red in the blue and black graph above. Only two asset classes are in the black: bonds (£1.2bn) and commodity (£16m). The main differences from the previous month are that aggregate equity flows are heavier, money market outflows lighter, and mixed-assets went into the red significantly (-£1.14bn). As we’ll see under charts 4 and 5, mixed-assets unpopularity is far from uniform.

Equities saw the heaviest redemptions, at £1.62bn. Passive funds nevertheless attracted £516m.

While bonds were the biggest money takers for the month, as has been the trend for some time, this was an overwhelmingly passive story, as active funds saw redemptions of £386m.

Lastly, alternatives saw heavier outflows than usual (-£588m), although there doesn’t seem to be a specific strategy that has fallen out of favour, and there are therefore no classifications to make it into the bottom 10 (chart 5).


Chart 3: Passive Asset Class Flows, Mutual Funds v ETFs, September 2023 (£bn)

Source: LSEG Lipper


As stated above, passives are making the running in equity and, most of all, bond flows. What’s interesting is that ETFs are making more inroads into the bond space than equity, despite the latter being a more mature market. ETFs have taken 28.5% of the £1.13bn passive bond flows, but only 6.7% of the £516m of passive equity flows.

There’s a small amount of activity with passive money market vehicles, with ETFs attracting a modest £19m.


Flows by Classification

Chart 4: Largest Positive Flows by LSEG Lipper Global Classification, September 2023 (£bn)

Source: LSEG Lipper


Mixed Asset GBP Aggressive retains its number-one slot for the second consecutive month, netting £1.13bn. Over 12 months, the classification has attracted £17bn, in stark contrast to its Balanced and Conservative siblings, which have shed £5.84bn and £2.21bn, respectively. A tilt towards equities will have benefited investors, but this seems a poor explanation for the divergence, as investors tend to stay within their risk tramlines—this is, after all, what they are for. And, of course, it’s bonds that are taking most of the money. As can be seen from the table below, BlackRock is the biggest money taker. But the divergence can’t be put down to the relative attractions of one fund manager, as its FutureWise funds are also the top sellers in the other two mixed-assets sectors. So, I’m putting this in the “go figure” pile for now.


Source: LSEG Lipper


As in previous months where equities in general have seen outflows, Equity Global remains in the black, netting £808m, with £464m going into active strategies. M&G Global Themes continues the manager’s strong run in this area.


Source: LSEG Lipper


Also, it is interesting to see that sterling-denominated bond strategies are popular bond classifications, with Corporates, Government, and Inflation Linked taking £1.53bn between them. Elsewhere, promoters have been talking up the Japanese equity market for some time now, with attractive returns feeding through to help the case, and it seems investors are starting to take note, with inflows of £315m for the month. However, over 12 months the classification is in the red to the tune of £429m.


Chart 5: Largest Outflows by LSEG Lipper Global Classification, September 2023 (£bn)

Source: LSEG Lipper


The largest outflows this month—unusually—were from Absolute Return GBP Medium, at £1.119bn. Much of this was from one single share class, so I would put this down to “idiosyncratic”, rather than carrying any meaningful information about the broader market. Likewise with the Equity Asia Pacific ex Japan flows, which otherwise remains pretty flat.

UK equity flows summed from the table above were negative to the tune of £881m.


Sustainable Fund Flows

Chart 6: Sustainable Asset Class Flows, September 2023 (£bn)

Source: LSEG Lipper


Total sustainable flows over the month were £1.61bn, with conventional funds seeing outflows of £4.92bn. Within this, the rotation from conventional to sustainable equity funds continues (at £1.19bn/-£2.81bn). Both conventional and sustainable bond funds saw inflows this month, with the latter taking £241m, or slightly more than 21%. Interestingly, the two top-selling equity funds were US-focused: the US market has been something of a laggard, as few have a five-year history, but this looks to be changing.


Source: LSEG Lipper


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, September 2023 (£bn)

Source: LSEG Lipper


BlackRock pushed M&G back into second place in September, taking £5.01bn over the course of the month, with the biggest money-taking asset classes being money market (£2.48bn) and mixed-assets (£1.07bn).


Source: LSEG Lipper


M&G came second, attracting £2.26bn. This was mainly accounted for by £1.6bn inflows to equity funds, and £4,776m to bond vehicles.


Source: LSEG Lipper

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