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by Dewi John.
Source: LSEG Lipper
December saw some of the largest falls in global equity markets since the financial crisis. Net fund flows for the month were
-1.28bn, or £1.87bn excluding MMFs. November’s strong flows to equity and MMFs were reversed, although bonds held their ground (see chart 2).
Over the full year, total flows to mutual funds and ETFs from UK investors were £2.48bn, or £1.03bn excluding MMFs. That the annual figures also look like a credible monthly tally indicates the uncertainty infecting markets, as asset classes have frequently changed from red to black, month on month.
The latter were the greatest beneficiaries of the year’s flows, attracting £1.45bn. Equities follow, with £1.05bn, then bonds at £921m. Mixed assets have suffered outflows of £669m over the year, and real estate saw £338m in outflows.
Chart 2: Asset Class Flows, Active and Passive, December 2024 (£bn)
Source: LSEG Lipper
December saw one of the largest drawdowns in the S&P 500 and MSCI ACWI since the global financial crisis, and this is reflected in the month’s flows to equity funds, which were negative to the tune of £2.77bn (albeit with an inflow of £259m into passives). Often in such circumstances, it’s MMFs that benefit—the infamous “dash for cash”—but the month’s largest redemptions were suffered from these vehicles (-£3.14bn).
On the other hand, despite the fears of the inflationary implications of the incoming US administration and its wider effects on global bond markets (of which more, undoubtedly, in the January report), bond funds have been the main beneficiaries in December, with inflows of £3.79bn. This was split £950m to active funds and £2.84bn to passives. So far, the refrain from active managers, that you don’t want to get caught in indexed fixed-interest markets in a market such as this, isn’t gaining much traction. Indeed, over the full year, of the £13.81bn that has flooded into bond funds, all this and more—£21.71bn—has been into their passive forms.
Other asset classes in positive territory were alternatives (£517m) and mixed assets (£370m).
Chart 3: Passive Asset Class Flows, Mutual Funds v ETFs, December 2024 (£bn)
Source: LSEG Lipper
Passive funds took a total of £3.18bn over December, split £2.73bn to mutual funds and £448m to ETFs. Flows to bonds went £2.11bn to mutual funds and £728m to ETFs, while their equity equivalents went £491m to mutual funds, with outflows of £232m to ETFs.
Other corners of the passive market are more subdued, but with £95m of inflows to mutual fund MMFs and outflows of £42m to ETFs meriting a footnote.
Chart 4: Largest Positive Flows by LSEG Lipper Global Classification, December 2024 (£bn)
Source: LSEG Lipper
Given the roiling in equity markets over the month, one should perhaps expect to see a churn in classification leaders (and losers—see chart below). Mixed Asset GBP Aggressive comes top of the pile, netting £1.11bn over the month. It has been the standout success for mixed asset classifications over the year, as Balanced and Conservative have suffered reputational damage from their greater bond exposure—and likely an unwinding of their bond-proxy role in the previous low-interest rate environment. Over 2024, Mixed Asset GBP Aggressive funds have drawn in £13.4bn.
Source: LSEG Lipper
Given recent concerns over rising government bond yields, it’s something of a surprise to see Bond GBP Government coming in at second place, taking £1.02bn—all of which and more going to passives. It’ll be even more surprising if this persists into January, as the asset class overall has been offloaded, but for now we remain sceptical.
Source: LSEG Lipper
Some investors sought solace in US blue chip volatility in their smaller siblings, as £730m went to Equity US Small & Mid Cap funds, all of which were actively managed. And, despite the large crossover between Equity Global and Equity US universes, the former also had a good month—netting £602m—albeit with ££192m outflows from active Equity Global funds.
Chart 5: Largest Outflows by LSEG Lipper Global Classification, December 2024 (£bn)
Source: LSEG Lipper
As earlier indicated, despite the month’s volatility and the enduring attraction of MMFs in a persistently high-rate environment, Money Market GBP funds suffered redemptions of £3.06bn over the month. This was followed by Equity Europe ex UK, with redemptions of £1.05bn, mainly from active strategies.
Equity UK concluded a brief purple patch, with outflows of £965m, split roughly between active and passive. This, we feel, may be one to watch, as to whether the relative valuations attract investors back over a longer period of time.
The main eyebrow-raiser this month, however, is Equity US, which saw redemptions of £723m. Some £473m of this was from passive funds, which is of interest, because most of the money going into this classification over the past year has been to active managers, so inflows and outflows here are asymmetrical. Over the full year, however, Equity US funds have seen inflows of £19.57bn—the largest of any classification by several billion.
Equity Theme – Alternative Energy continues its negative run, shedding £685bn, with potential stimuli being the resurgence of the “higher for longer” environment—a negative on their bond-like characteristics—or the assumed effects of the incoming US administration on this area of the market. As the song says, it ain’t necessarily so, but we will have more to say on this shortly.
Chart 6: Sustainable Asset Class Flows, December 2024 (£bn)
Source: LSEG Lipper
Sustainable funds ex MMFs for December saw outflows of £888m, exhibiting a downward trend over the fourth quarter, from inflows of £1.52bn in November and £6.69bn in October. Worst hit over the month were equity funds, which suffered £947m of redemptions.
This was mitigated by the moderately positive inflows for sustainable MMFs (£92m), bonds (£37m), and mixed assets (£23m).
Source: LSEG Lipper
While no clear theme dominates the bond flows (with such small numbers, it would be unusual to see one), BlackRock/iShares clearly dominates in terms of promoter.
Source: LSEG Lipper
Despite the negative month for sustainable funds, it’s been quite positive for these vehicles over the full year, with inflows of £15.22bn. This has been overwhelmingly to equity funds (£12.02bn), followed by bonds (£3.43bn), then MMFs (£328m). Conversely, sustainable mixed assets have continued to suffer over the course of the year, shedding £665m.
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.
Chart 7: Largest Positive Flows by Promoter, December 2024 (£bn)
Source: LSEG Lipper
BlackRock was December’s top money taker, netting £2.62bn, down from November’s £4.71bn. Its money market funds took £1.33bn, with £1.17bn going to bonds and £515m to mixed assets, offset by £380m outflows from equity funds. Given month-on-month flows, it’s no surprise that BlackRock also leads the field over the full year, with £36.12bn.
Source: LSEG Lipper
Vanguard follows for the full year, albeit with something of a gap, with £9.93bn. It also leads over December, with £1.12bn. This is dominated by bond fund flows (£505m), equity (£409m), and mixed asset (£160m).
Source: LSEG Lipper