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November 21, 2023

Everything Flows, 10/23: Heaviest Equity Redemptions Since Mini-Budget as Money Market Funds See Large Inflows

by Dewi John.

 

Asset class view

  • Money market fund flows turned positive, netting £4bn.
  • Equities saw the heaviest redemptions since last September, at £7.54bn.

 

Active v passive

  • Active funds suffered redemptions of £7.5bn, while their passive peers shed £2.7bn, both excluding money market funds.
  • Bond ETFs netted £1.06bn, while equity ETFs attracted £194m.

 

Classifications

  • Money market GBP was the largest money taker, with inflows of £3.8bn.
  • UK equities classifications combined lost £3.8bn

 

Sustainable fund flows

  • Sustainable fund flows were flat for the month despite large moves for conventional flows.
  • Only sustainable bonds saw meaningful positive flows, at £136m.

 

Asset manager view

  • DWS was the top-selling fund manager, netting £1.5bn.

Flows by Asset Class

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

Source: LSEG Lipper

 

The S&P 500 fell over the month, with a precipitous decline from October 16 to 27, pretty much replicated by the FTSE 100. Whether as a result of recessionary fears, heightened geopolitical tensions, or a combination, equity funds saw the largest outflows since September 2022, at £7.54bn. That takes total redemptions for equity funds for the year to £25.45bn.

For the first time since March, bond funds, too, were in redemption mode in October, shedding £634m. Nevertheless, they have been the most successful asset class year to date, attracting £10.56bn. October was the second consecutive negative month for mixed-assets funds, which shed £1.34bn, although they are up £4.57bn over the year.

What’s as startling as the heavy equity redemptions, however, has been the long-anticipated (at least by me) positive flows to money market funds, which attracted £4bn—with the marginal exception of commodity funds (£30m), the only asset class to be in the black for the month. The UK market has bucked the international trend of positive flows to these vehicles over the year, spurred by the decent yield on cash and bruising bond market conditions. UK cash funds, in contrast, have haemorrhaged cash over the year, the exceptions being March and June, at £3.38bn and £71m, respectively. This is almost certainly the result of pension funds redeploying the assets they had stashed in money market funds in the wake of the mini-budget. Do October’s figures signal the end of that process? I’d signalled a definite “maybe” in March and proved to be rather premature. October 2022 saw inflows of £69.3bn, and outflows to September 2023 totalled £68.33bn, so that would make sense.

 

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

Source: LSEG Lipper

 

Chart 2, above, looks rather different from the previous month’s. First, money market flows have reversed, as discussed above. Second, equity redemptions are much heavier, with both active (-£4.77bn) and passive (-£2.77bn) sharing the pain. And third, bonds are in negative territory (-£634m)—although passive bond funds have just about hung on, taking £4m over the month.

Alternatives continue their negative run, shedding £593m, although passives here netted £28m. Meanwhile, real estate also saw outflows of £123m, all in active money.

 

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

Source: LSEG Lipper

 

Given the negative month for both equities and bonds, it’s interesting to see October work out positively for both on the ETF front, at £194m and £1.06bn, respectively. Meanwhile, passive mutual funds shed £2.96bn while their bond equivalents lost £1.06bn—the later almost exactly mirroring the flows into their ETF peers.

 

Flows by Classification

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

Source: LSEG Lipper

 

Given the asset class-level view, it’s no surprise that Money Market GBP funds were the greatest beneficiaries of inflows at the classification level, attracting £3.82bn.

 

Source: LSEG Lipper

 

As was the case last month, Mixed Asset GBP Aggressive funds proved popular (£515m) despite negative sentiment for the asset class overall, albeit at more muted levels.

 

Source: LSEG Lipper

 

There was only one equity classification in the top 10, and a rather hybrid one at that, with Real Estate Global taking £159m. Otherwise, bond sectors predominated, with a heavy skew towards passive plays, as might be expected from chart 2, with the exception being Bond Global Corporates EUR, where active managers took £136m. Within this, though, there is little continuity in the top-selling bond sectors in September, when the asset class again had a heavy showing in the top 10, and October’s chart.

 

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

Source: LSEG Lipper

 

The pain continues for UK equities in October, with the three main UK classifications shedding a combined £3.76bn (£881m in September). Meanwhile, Equity Global funds broke their positive run, with redemptions of £1.19bn (£671m active, £523m passive).

Despite aggressive mixed-assets funds continuing to do well (chart 4), the love is not being shared by other categories in the asset class, and Balanced GBP funds lost £1.1bn. This is something of a paradox, as the most equity-heavy mixed asset classification continues to hoover up investor cash as equities in general suffer large redemptions. Meanwhile, as investors fill their boots with bond funds, you can’t give away the more bond-heavy mixed-assets classifications. There must be a good explanation for this, but I’ve yet to stumble on the eureka moment.

Absolute Return GBP Medium funds continued their negative run, losing £378m over the month, and £1.67bn over the 12 months. It’s been a similar story for Alternative Multi Strategies, which have shed £359m and £2.02bn over the same periods.

 

Sustainable Fund Flows

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

Source: LSEG Lipper

 

If your screen has very good resolution and your eyesight is a lot better than mine, you may be able to see some blue. In short, it’s been a very muted month for sustainable funds. Excluding money market vehicles, sustainable funds saw outflows of £319m for the month. However, given that their conventional equivalents shed £10.2bn, that’s not a bad result, and implies the continuing attractiveness of these strategies for investors.

Nevertheless, despite the strong inflows for money market funds overall, their sustainable equivalents suffered redemptions of £126m. Excepting a £3m sliver going into sustainable real estate (and just one fund, at that), only bonds saw positive flows, at £136m.

 

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, October 2023 (£bn)

Source: LSEG Lipper

 

DWS leads the pack this month, albeit with its £1.51bn take accounted for by one money market share class (see table below). That said, in a strongly negative month, its redemptions have been very mild.

 

Source: LSEG Lipper

 

BlackRock came second, attracting £1.18bn. This was mainly accounted for by £839 inflows to money market funds, and £346m to mixed-assets vehicles.

 

Source: LSEG Lipper

 

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