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March 26, 2024

Everything Flows 2/24: Spring comes early, as equity and bond flows blossom

by Dewi John.

Asset class view

  • Equity performance was broadly positive in February, driving the strongest inflows since last April of £1.36bn
  • Bond funds enjoyed inflows of £2.06bn, the largest inflows into the asset class since last July of £3.2bn.

Active v passive

  • Active funds suffered redemptions of £2.78bn, excluding money market funds (MMFs).
  • Passive equity funds netted £3.3bn.

Classifications

  • Bond Global USD funds saw the largest inflows for the month of £2.04bn.
  • Money Market GBP suffered the largest outflows, of £5.02bn.

Sustainable fund flows

  • Sustainable funds took £3.32bn.
  • Sustainable equity proved most popular, netting £2.23bn.

Asset manager view

  • BlackRock enjoyed the strongest flows, netting £5.58bn.

Flows by Asset Class

Three-year flows

Chart 1: Asset Class Flows, 36 Months, to February 2024 (£bn)

Source: LSEG Lipper

 

Last month, we noted that the animal spirits of the market were in deep slumber. In February, intimations of spring seem to have woken them from their hibernation.

Equity performance was broadly positive in February, driving the strongest inflows since last April (£1.36bn, and £1.95bn YTD).

On the fixed income front, long-duration bonds and rate-sensitive sectors were negatively impacted by rising long yields in the US, UK and Europe, according to analysis from FTSE Russell. Nevertheless, bond funds enjoyed inflows of £2.06bn, the largest inflows into the asset class since last July (£3.2bn YTD).

Overall, it’s been the strongest month for long-term assets since May 2023.

On the other hand, mixed assets (-£842m) and real estate (-£128m) saw relatively modest outflows—as, indeed, did money market funds (MMF) where £5.09bn headed out of the door (-£3.98bn YTD).

 

Active versus Passive

Chart 2: Asset Class Flows, Active and Passive, February 2024 (£bn)

Source: LSEG Lipper

 

Bond flows break down to £571m into active vehicles and £1.49bn into passives, continuing the trend to the former that’s been evident in fixed income markets for some time. Equity markets led the trend, and we see this even more strongly embedded as the £1.36bn of positive flows breaks down to flows of £3.25bn—the strongest of either strategy for any asset class—and redemptions of £1.89bn for active funds. Elsewhere, other asset classes, for good or ill, are dominated by active flows.

Excluding money market funds, active flows have been negative to the tune of £2.78bn, while index-tracking funds have netted £4.76bn.

 

ETFs and Passive Mutual Funds

Chart 3: Passive Asset Class Flows, Mutual Funds v ETFs, February 2024 (£bn)

Source: LSEG Lipper

 

In total, ETFs saw outflows of £591m while passive mutual funds netted £4.78bn. For the two main asset classes, that breaks down to modest outflows of £54m for equity ETFs and inflows of £3.3bn for mutual funds, while bond ETFs shed £563m as their mutual fund peers netted £20.5bn.

Elsewhere, as is generally the change, it’s small change for other asset class passive flows.

 

Flows by Classification

Largest inflows

Chart 4: Largest Positive Flows by LSEG Lipper Global Classification, February 2024 (£bn)

Source: LSEG Lipper

 

US equities outperformed global in February, so ensuring that the US retained its lead over 12 months. China rebounded, buoying broader EM performance. The dollar continued to gain broadly versus other currencies, further reversing the Q4 2023 retreat. This has provided a tailwind for dollar-denominated assets, reflected in the strong flows to Bond Global USD (£2.04bn) and Equity US (£1.94bn), both classifications favouring passives.

 

Source: LSEG Lipper

 

Source: LSEG Lipper

 

US-heavy Equity Global funds came in third at £885m. This figure, however, masks a rotation from active (-£568m) to passive (£1.45bn) over the month. Last year was a quietly positive one for European equities, and over February Equity Europe ex UK funds took £674m, with £557m of this being hoovered up by active funds.

Despite taking a breather over the month, and the negative flows we saw in January, Equity Japan netted £594m.

It’s also worth noting that Mixed Asset GBP Aggressive continues to buck the negative trend for mixed assets funds, attracting £454m.

 

Largest Outflows

Chart 5: Largest Outflows by LSEG Lipper Global Classification, February 2024 (£bn)

Source: LSEG Lipper

 

In January, Mixed Asset GBP Balanced funds saw the heaviest outflows, and—with the obvious exception of Money Market GBP (-£5.02bn)—that continues to be the case for February, with outflows of £931m. There is an obvious contrast here between this (along with Conservative) and Aggressive funds, which we believe is largely down to moneys that have gone into mixed assets funds with high bond allocations as a bond surrogate over the time of low rates now unwinding as pure bond plays offer decent yields for the first time in more than a decade.

Over 2022, we saw an uptick of interest in Equity Global Income funds, as the importance of dividends invested and the classification took £1.64bn. That wasn’t sustained, and last year £1.06bn flowed the other way, and in February, investors pulled a further £751m. Its UK equivalent also saw outflows of £570m, though this likely has more to do with the perennial unpopularity of UK equities, given that Equity UK suffered redemptions of £829m (along with Equity UK Sm&Mid Cap funds, from which £287m was redeemed).

 

Sustainable Fund Flows

Chart 6: Sustainable Asset Class Flows, February 2024 (£bn)

Source: LSEG Lipper

 

Over the course of the month, sustainable funds (ex-MMF) took £3.12bn, while their conventional peers saw outflows of £1.14bn.

Equity funds saw the largest inflows, netting £2.28bn (conventional equity shed £917m). On the basis of last year’s performance (link to report here), this isn’t a performance story, with sustainable funds yet to make up the ground lost over the past two or three years, although the difference isn’t significant. It’s likely that institutional mandates are still driving this trend. As can be seen from the table below, more than half of this is from one allocation to one share class, which again strengthens the case for the drive coming from institutions.

 

Source: LSEG Lipper

 

The picture is less stark with sustainable bond flows, which took £889m, or 43.2% of bond flows. As can be seen from the table below, flows are more broadly distributed, but with a clear bias to diversified developed market/global bonds.

 

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, February 2024 (£bn)

Source: LSEG Lipper

 

Stronger flows to the promoters in the table above, as four companies netted more than £1bn, whereas in January it was only BlackRock. BlackRock took £3.33bn, dominated by flows of £5.58bn to equity funds, which is unsurprising, given that all five of the top money takers in the table below are equity share classes.

 

Source: LSEG Lipper

 

HSBC came second, with £1.62bn, as equities attracted £747m, bonds £594m and mixed assets £157m.

 

Source: LSEG Lipper

 

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