Flows Turn Positive After Two Years in Red
Executive Summary
Aggregate flows for the year were £27.78bn (£16.29bn, ex MMFs).
Bond funds enjoyed the largest absolute flows, netting £13.7bn.
Active funds suffered outflows of £815m (considerably down on 2023’s redemptions of £76.59bn), while passive mutual funds took £25.24bn and ETFs attracted £3.36bn.
Equity US netted £19.54bn, dwarfing not just the flow to equity funds overall, but also exceeding the inflows to all long-term investment funds. This was predominantly to active strategies.
Equity UK lost £20.89bn, with £15.13bn of this from active strategies. Equity UK Income (-£6.12) and Equity UK Small & Mid Cap (-£1.84) also continued to suffer.
Sustainable equities finished the year as the most successful sustainable asset class, netting £12.05bn, despite their first ever negative quarter in Q4.
If 2023 demonstrated that markets had little talent for predicting recessions, 2024 showed that the same could be said for predicting base rates. Expectations for the number rate cuts gyrated wildly with every inflation print from the Fed of Bank of England: two, six…you may as well have outsourced this to a prophetic octopus.
Over the course of the year, 10-year gilt yields rose until the early summer, subsided until September—from whence they ground higher—in lockstep with, but above, their US counterparts. It was also a positive year for equities, not least US large caps. Emerging market equities on the whole, in contrast, struggled.
Macro drivers underpinning investment decisions have become more unpredictable, with the largely stable conditions of the quantitative easing-supported post-global financial crisis world an increasingly distant memory. This highlights the growing importance of not just security selection, but portfolio construction, for active fund managers.
After two negative years, flows from UK investors into mutual funds and ETFs returned to positive territory. However, long-term asset flows of £16.29bn were still below the 20-year average of £24.29bn, let alone the 2017 peak of £107.78bn.
The single statistic that best characterises the year is £19.54bn—the inflows to Equity US funds. That’s both the largest ever annual allocation to this classification—almost as much as the next four largest years combined—and larger than the combined net flows of all long-term assets. At the other end of the scale, Equity UK continued its negative run, with outflows of more than £20bn.
Asset Class Overview
Chart 2: Asset Class AUM by Year, 2005-2024 (£bn)
Source: LSEG Lipper
Over the 20 years covered by chart 1, total net assets (TNA) held in UK mutual funds and ETFs have risen from £444.41bn to £2.36trn, or a 530% increase. By way of comparison, UK GDP over the period broadly doubled, not adjusting for inflation. The asset classes that have increased by the largest amounts have done so from very low bases, and the largest relative increase—commodities—still makes up just 0.06% of total assets. Equity fund assets have decreased at a slower rate than the overall market (421.6%), as have bonds (483.77%). Meanwhile, mixed asset fund assets have increased more than tenfold, and MMFs by 778.54%.
UK assets increased over the past year by 6.81%, with the past two years seeing incremental increases after 2022’s fall in AUM. This year’s main beneficiary was equity, with a 10.02% increase, with mixed asset funds MMFs and particularly bonds (2.12% growth) lagging.
Chart 2: Asset Class AUM by Year, 2005-2024 (%)
Source: LSEG Lipper
There have been some significant fluctuations in the asset mix over the past two decades (chart 2). On closer examination, it’s likely that global and national news have driven the sharper changes.
Equities are of course the largest class of funds held by UK investors. However, their share has contracted over time. Until the global financial crisis (GFC), UK investors held just above 60% of their assets in equity funds. The GFC saw that fall about eight percentage points to 52.5% in 2008. However, the rebound in global equity markets the following year didn’t reverse the trend, and equity share continued down until 2016, where it troughed at 42.78%. Pension fund selling has likely had an impact on this, but hasn’t quelled the rise to 48.33% in 2024, driven by bullish equity markets counterbalanced by lacklustre fixed income returns for much of this period.
Bond funds themselves have fluctuated between 15.32% (2007) and 20.59% (2012) over the period. The largest relative increase was from 2008 to 2009, with investors fleeing from equities, post GFC, with a pull factor likely increased yields. Unsurprisingly, 2022 also signified a significant dip (16.08%), the year being a bloodbath for bonds.
Mixed assets have enjoyed a smoother upward trajectory, doubling their percentage over the period, from just above 10% to just above 20%. As we’ve covered in previous monthly reports over the past couple of years, in recent times, this has very much been to more equity-heavy funds, with investors exiting balanced and conservative allocations.
The GFC seemed to work as a fillip to MMFs, which broke into double-digits in its wake, where they have remained ever since.
Alternatives have gone from a few basis points (five, to be more precise) to a relative peak of 2.9% in 2019, and an absolute peak the following year, from where they have trended inexorably downwards. Suffice it to say that the peak coincides with peak popularity of Target Absolute Return funds.
Lastly, real estate funds have had their reputations dented by liquidity issues, with many investors finding their assets unexpectedly gated, and assets have trended downwards, from 2.53% in 2016 to 0.69% in 2024.
Chart 3: Asset Class AUM, 2024 (%)
Source: LSEG Lipper
Which leads us to a snapshot at the end of 2024, with equity funds holding the largest share of assets (48.33%), followed by mixed assets (20.43%), bonds (16.27%), and MMFs (12.49%).
Chart 4: Asset Class Flows by Year, 2005-2024 (£bn)
Source: LSEG Lipper
Although AUM grew in 2023, it was the second consecutive year of redemptions (chart 4). Thankfully, 2024 saw a return to positive territory for net flows. Total net flows for the year were £27.78bn (£16.29bn, ex MMFs). Despite their sub-trend growth in AUM (chart 1), bond funds enjoyed the largest absolute flows, netting £13.7bn, followed by MMFs (£11.49bn), and then mixed asset funds (£3.22bn). Note from chart 4 that mixed asset funds have enjoyed positive funds over the entire 20-year period—the only asset class this is true of (although it depends heavily on which part of the MA market you’re in, as we’ll see from chart 8 and 9).
Although all eyes have been on equities over the year, they contributed a relatively subdued £856m to flows. That said, the asset class saw net redemptions of £58.24bn over the previous two years, so equity managers will be relieved to see this return to the black.
Conversely, there were redemptions from real estate (-£1,47bn) and alternatives (-£806m). Indeed, net real estate flows haven’t been in positive territory since 2016, and alternatives since 2018.
Chart 5: Asset Class Flows by Month, 2024 (£bn)
Source: LSEG Lipper
It’s been a volatile year for flows, looked at on a monthly basis. Equity funds enjoyed inflows for seven months out of the 12, with the largest being in October (£6.54bn), which followed hard on the heels of the year’s largest equity redemption (-£9.49bn). The latter was most likely catalysed by fears of what September’s budget had in store for investors, with many (though not all) deciding it was an over-reaction the next month, and putting their money back into the market. Equity investors’ animal spirits have been somewhat skittish over the year, and the large falls in the S&P 500 and Nasdaq in December—which weighed on the fortunes of over global indices into the New Year—clearly didn’t help matters as we eased into 2025.
Bonds overall have fared better, with eight positive months. The worst month for the asset class was, again, September (-£3.48bn), although this was followed by bonds’ strongest quarter.
Mixed asset funds had three negative months, being the first two months of the year and September (we’re seeing something of a pattern with the latter). And, while MMFs are the standard “risk-free” asset, it’s not quite that simple, as corporates also use them to park cash for events such as dividend payments, and MMFs can also be liquidated quickly in times of stress, so it’s difficult to see a clear pattern in these flows over the year.
As can be seen from the chart, flows for alternatives, commodities, and real estate funds are all relatively small, though real estate only saw one positive month over the year. However—stretching for the positive—the trend over the year is to lower redemptions.
Trends by Asset Class, Active v Passive
Passive Bonds See Largest Inflows for Second Consecutive Year
Chart 6: UK Asset Class Flows, Passive and Active Mutual Funds and ETFs, 2024 (£bn)
Source: LSEG Lipper
In aggregate, active funds suffered outflows of £815m (considerably down on 2023’s redemptions of £76.59bn), while passive mutual funds took £25.24bn and ETFs attracted £3.36bn (about half that of the previous year). However, excluding MMFs, active funds’ outflows increased to £11.97bn.
The largest movements are in fixed income, with active funds shedding £8.01bn over the year, as passive mutual funds netted £19.07bn and ETFs £2.64bn. Why is this happening? After all, tracking a bond index means you’re allocating capital to the most indebted entities—something that active managers are never slow to point out. Those chickens may come home to roost…but not yet. I last looked at this in 2023, and found that comparable passive funds were marginally ahead of their active equivalents.
Equities similarly saw a continuing rotation from active strategies (-£4.89bn) to passive MFs (£5.62bn) and ETFs (£129m). Interestingly, however, on place this hasn’t been happening is in the Equity US space, the year’s most popular classification (chart 8). Also, despite the concerns regarding large exposures to the Magnificent Seven in this market, passive doesn’t necessarily mean this is the case since alternatives to cap weighted exist—such as equal weighted—although investors’ exposure to these has to date been episodic.
Chart 7: UK Passive and Active Mutual Funds and ETFs, Relative Net Assets, 2005-2024 (%)
Source: LSEG Lipper
The effect on the mix at the level of total net assets has been an increase of the proportion of passive mutual funds between 2023 and 2024 from 21.9% to 24.3%, with ETFs static at 3.2%, and active mutual funds fell from 74.9% to 72.5%.
In 2005, active mutual funds held 92.9% of assets, passive mutual funds had 6.8%, and ETFs just 0.3%.
Lipper Global Classification
The Continuing Love Affair with US Large Caps
Chart 8: 10 Largest Positive Flows by Lipper Global Classification (£bn)
Source: LSEG Lipper
It’s not been a vintage year for equity fund flows overall, but Equity US managers have been filling their boots, as the classification netted £19.54bn, dwarfing not just the flow to equity funds overall, but also exceeding the inflows to all long-term investment funds. Given the performance of US large caps over the year, that’s not such a surprise. What is more surprising is that all this and more—£20.92bn—has gone to active managers. Why this should be in the world’s best researched and most liquid market isn’t altogether clear, with active managers as likely to increase exposure to the Mag7 relative the benchmark as not.
Another success story for active management is second-placed Mixed Asset GBP Aggressive, with almost all of the £13.39bn going to active managers. This is, of course, considerably more than the £3.22bn that investors have allocated to MA funds as a whole, indicating that the other, less equity-heavy, classifications have not been so fortunate (see chart 9).
Equity Global has been edged aside by the market infatuation with the US. Nevertheless, combining Equity Global and ex-UK gives a total of £14.2bn—ahead of Mixed Asset GBP Aggressive. Global allocation itself gives increasing exposure to the US—more than 60% by benchmark—and, as we recently noted, many of the top-selling funds offer more than that.
Investors have allocated considerable sums to Bond Global USD (£9.18bn), Bond GBP Government (£6.58bn), and Bond Global Corporates LC (£4.31bn). It’s worth noting, however, what’s not there across the fixed income piste: high yield debt. Despite the strong performance of the former, allocations have been relatively low. Spreads are tight by historic standards, which may deter investors from taking on that additional risk, or fear of the potential effects of higher rates will have on defaults. Whatever the reason, allocations have been quite scant, with Bond Global High Yield GBP seeing the eleventh worst outflows of £1.71bn.
An honourable mention, given the strong rally in H1, goes to Equity Japan, just outside of the chart, having attracted £2.09bn, some £1.41bn of this to passive funds.
Outflows by Lipper Global Classification
UK Investors Continue to Offload Domestic Equities
Chart 9: 10 Largest Negative Flows by Lipper Global Classification (£bn)
Source: LSEG Lipper
It was yet another miserable year for Equity UK, despite glimmers of hope in October and November, as the classification lost £20.89bn, £15.13bn of this from active strategies. Equity UK Income (-£6.12) and Equity UK Small & Mid Cap (-£1.84) also continued to suffer.
Valuations are attractive—though this is not new—but vie with concerns over growth and the prospect of better returns elsewhere in investors’ minds. It’ll be interesting to see if volatility in the US market at the end of December and in January help convince fund buyers that there may also be some green grass on this side of the fence.
Mixed Asset GBP Balanced (-£6.39bn) and Mixed Asset GBP Conservative (-£3.47bn) also continued to suffer, in contrast to their Aggressive sibling. It’s likely that this is a consequence of investors nursing the 2022 losses from the bond exposures in their MA allocations, and the unwinding of positions in such funds, which were used as bond proxies during the post-GFC low-rate and low-yield environment. If the former factor dominates, one would expect to see a similar reaction in the event of a sustained equity correction.
There was a continuation of the negative sentiment for Equity Theme—Alternative Energy, with redemptions of £1.85bn. That’s considerably worse than last year, despite lower rates, and it’s possible this is to some degree a response to anticipated policy shifts.
ESG
Sustainable Equities Hit by Q4 Redemptions
Chart 10: Asset Class Flows, ESG v Conventional, FY 2024 (£bn)
Source: LSEG Lipper
Sustainable equities finished the year as the most successful asset class, netting £12.05bn, with their conventional equivalents shedding £10.83bn. Sustainable bonds came in a distant second, with inflows of £3.43bn, as their conventional peers attracted £10.38bn.
The positive annual flows for sustainable funds were despite a negative Q4 (-£2.24bn), the first quarter that these strategies have gone into the red. This was driven by large redemptions from equity funds of £3.54bn—again, the first time this has happened, as equity flows have been the cornerstone of sustainable investing over the years. What’s more, this is more than collateral damage in a general exodus from the asset class, as total net flows for the quarter were £6.62bn. All of which begs the question, have sustainable investments hit an inflection point?
MMFs netted £327m over the year (conventional: £11.16bn); real estate £88m (-£1.56bn); and alternatives £14m (-£837m). Mixed assets were the only asset class to be in the red, by £665m, as their conventional peers attracted £3.87bn.
Overall sustainable funds took £15.24bn for the year (£14.92bn ex MMFs), compared to £12.19bn (£1.03bn ex MMFs) over the year. The equivalent figures for 2023 were £15.26bn (£14.53bn) for sustainable funds; and
-£72.18bn (-£31.9bn) for conventional funds. While sustainable fund flows have held steady year-on-year (in aggregate, at least), they haven’t been amplified in the strong rebound from 2023’s heavy redemptions.
Note: Lipper has published a more detailed 2024 review of the UK sustainable fund market here.
2024’s Most Successful Fund Management Companies
Chart 11: Fund Flows by Fund Management Company—Top 10 (£bn)
Source: LSEG Lipper
BlackRock again dominates sales, with a total of £36.11bn, up from 2023’s £21.72bn, with its largest allocations being to equity (£22.06bn), mixed-assets (£5.22bn), and bond (£5.21bn) enjoying the largest market share across the three asset classes.
Vanguard knocks HSBC from second place, netting £9.93bn, predominantly to equity (where it had the second-largest market share) and bond funds.
Launches, Closures and Mergers
Chart 12: Mutual Fund and ETF Share-Class Launches, Mergers and Liquidations, 2019-2024
Source: LSEG Lipper
Over the course of 2024, UK fund promoters launched 1,320 fund share classes, while liquidating 875 or merging 1,711 others. While launches were on a par with last year, there has been a significant uptick in both liquidation and mergers. As such, the sum of the latter two exceeds launches.
It does appear that the industry has been doing something of a house-cleaning, likely under the pressure of cost pressure and that of needing to demonstrate value for money, and it will be interesting to see if this is continued over the coming period.
Chart 13: Mutual Fund and ETF Share-Class Launches, Mergers and Liquidations, by Asset Class 2024
Source: LSEG Lipper
Mixed asset funds have received a significant “spring clean” with 243 share classes liquidated, 184 merged, compared with 217 launched. In relative terms, this is exceeded by alternatives funds, which saw 97 share classes closed, four merged, and 48 launched, as Target Absolute Return chickens came home to roost.
Equities saw 598 closures and 229 mergers, as 626 launched over the year. Meanwhile, bond share class launches still managed to exceed closures and mergers by 396 to 322, likely encouraged by the strong flows to the asset class.
