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April 23, 2024

Everything Flows, 3/24: Investors Lurch from Equities to Bonds

by Dewi John.

Asset class view

  • Bonds netted £4.23bn over Q1, and £2.09bn over March, despite continuing equity rally.
  • Money market funds (MMFs) saw the largest inflows for the month, of £2.78bn.

Active v passive

  • Actively managed strategies saw outflows of £1.29bn, while passives had inflows of £359m, excluding MMFs.
  • Passive equity funds had the largest outflows, of £1.23bn.


  • Dollar strengthening over the quarter supported flows to Bond Global USD, which took a respectable £1.12bn.
  • Equity UK and UK Income continued to suffer, losing £1.67bn and £755m, respectively.

Sustainable fund flows

  • Sustainable funds reversed their positive run, shedding nearly £1bn.
  • The largest outflows were from equity funds, at £633m—a third of total equity redemptions.

Asset manager view

  • HSBC enjoyed the strongest flows, netting £1.58bn.

Flows by Asset Class

Three-year flows

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

Source: LSEG Lipper


It’s been mixed messages from key indicators as disinflation continued in most developed markets, although upticks in the US strengthened the signal of “higher for longer”… at least for now. Over the quarter, US CPI proved higher than expected in January and ticked up in February. Meanwhile, slightly higher inflation provided good news in both Japan and China.

Equity markets headed upwards over the quarter, while in fixed income, high yield outperformed investment grade, as government bonds struggled. Both the US dollar and oil rallied over the quarter.

Despite this strong equity performance, we note a tapering off of flows to the asset class, as bonds have proven the main (if not only) game in town for the quarter, netting £4.23bn. Commodities are the only other asset class in positive territory, to the tune of £28m—hardly an earth-shaking figure—while everything else is in redemption mode over the first three months of the year. Mixed assets funds have suffered most, shedding £2.74bn. Overall, £1.5bn has been pulled from ETFs and mutual funds over the quarter, although this falls to £266m once money market funds (MFF) are excluded.


Active versus Passive

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

Source: LSEG Lipper


Equity funds have gone from net positive to negative from February to March (-£1.87m), while MMFs have swung the other way (£2.78bn). Somewhat unusually, even passive equity is in negative territory, with outflows of £637m for March. As ever, however, the devil is in the detail, and it all depends on which parts of the equity market (see charts 4 and 5).

While MMFs saw the strongest positive flows, it’s also been a good month for bond funds, which took £2.1bn. This breaks down to £1.72bn passive and £374m active, as fixed interest investors’ preference for index-tracking funds continues.

Mixed asset funds saw outflows of £709m; alternatives £360m (£190m active to £170m passive); and real estate, £95m.

Funds overall took £1.84bn, although excluding MMFs investors redeemed £933m. This breaks down to redemptions of £1.29bn from actively managed strategies and inflows of £359m into passives—largely into bonds.


ETFs and Passive Mutual Funds

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

Source: LSEG Lipper


As was the case in February, most of the index-tracking action is with mutual funds rather than their ETF kindred—better news for mutual funds in the fixed income space, worse in equities. Passive mutual bond funds netted £1.67bn, leaving just £50m for their ETF equivalents to mop up, while equity mutual funds lost £1.3bn as their ETF peers were in the black to the (albeit modest) tune of £65m. Meanwhile, alternatives ETFs shed £171m.

In total, passive mutual funds attracted £405m as ETFs lost £24m.


Flows by Classification

Largest inflows

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

Source: LSEG Lipper


Given the top-line flows for MMFs, it’s almost inevitable that the largest flows to any classification would be to Money Market GBP, at £2.94bn (see table below).


Source: LSEG Lipper


The US dollar strengthening over the quarter likely continued to help flows to Bond Global USD, which topped the table in February and took a respectable £1.12bn in March. As can be seen from the table below, the most favoured funds were all passive.


Source: LSEG Lipper


Mixed Asset GBP Aggressive continues to buck the wider MA asset class’ trend, taking £1.07bn for the month. As we’ve opined before, this is likely due to the mixed-assets classifications with a higher bond proportion in the previous low-rate environment being used as bond proxies—a trade that is now unwinding.

What’s apparent from the above chart—and a little off-trend—is that, while allocations to bonds are largely passive (as the asset class-level figures would suggest), flows to the most popular equity classifications are dominated by active allocations. Equity US’s inflows of £830m, for example, breaks down to active inflows of £1.7bn and passive outflows of £867m.

Japanese and US equities continued to outperform the FTSE All World and peers over the first quarter, according to FTSE Russell figures, and the former was rewarded by inflows of £648m (£821m active/-£173m passive).

US and Global small- and mid-cap equity funds saw combined inflows of £464m, suggesting that someone, somewhere has an optimistic outlook on the global rate environment and broader economy. Meanwhile, Alternative Credit Focus took £398m, much of this to ABS-orientated funds.


Largest Outflows

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

Source: LSEG Lipper


The UK underperformed global peers in Q1 and over 12 months. Equity UK and UK Income continued to suffer, losing £1.67bn and £755m, respectively. UK small- and mid-caps evaded the popularity of their US and global peers, themselves shedding £263m.

Emerging and Asia Pacific markets ranked at the bottom for the month, according to FTSE Russell, and the former suffered outflows of £698m. China continued to be a drag on Emerging Markets’ performance despite a February rebound, but itself suffered a relatively modest £30m outflow, while broad Equity Emerging Markets Global was in the black to a similar amount.

It’s interesting to see both Equity Global (-£245m) and Equity Global Income (-£205m) in redemption mode, largely from active strategies. Equity Global flows have tended to be closely aligned to Equity US over the past period. It’s possible that investors are moving from their market-agnostic view and allocating to specific geographies. We’ll see over coming months as to whether this is a trend or a blip.


Sustainable Fund Flows

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

Source: LSEG Lipper


In February, sustainable funds (ex-MMF) took £3.12bn, while their conventional peers saw outflows of £1.14bn, with equities being particular beneficiaries. March looks rather different, as the combined green bars, above, are in the red to the tune of £657m (£996m including MMFs), while the figures for conventional funds are -£287m and £2.83bn, respectively.

There were small positive flows into bond (£79m), real estate (£4m), and alternative (£3m) sustainable funds. The former made up only 3.8% of total bond flows. Equity funds saw the heaviest sustainable outflows, at £633m.


Source: LSEG Lipper


As can be seen from the tables above and below, flows into individual share classes were modest.


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, March 2024 (£bn)

Source: LSEG Lipper


HSBC took £1.58bn, dominated by flows of £1.01bn to equity funds, £251m to bonds, £214 to mixed-assets, and £119 to money market funds.


Source: LSEG Lipper


M&G came second, with £1.44bn, as equities attracted £986m, bonds £594m, and bonds £436m.


Source: LSEG Lipper


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