UK Funds See More Outflows in Q2

Looking
at
categories,

UK
large-cap
equity
funds
contributed
to
the
net
withdrawals
aggregate
figure,
with
over
£2
billion
in
outflows
in
June
alone,
and
£6.7
billion
year-to-date.
Conversely,
within
the
equity
fund
universe,

global
large-cap
equity
strategies
topped
the
ranks
for
fund
inflows,
with
over
£3.6
billion
on
aggregate
added
in
Q2
and
£4.2
billion
year
to
date.

Among
other
asset
classes,
fixed-income
strategies
ended
the
quarter
in
net
redemptions’
territory.
Here
investors
showed
a
preference
for
UK
gilt
funds,
as
well
as
global
bond
strategies,
while
both

GBP
corporate
bond
and

global
flexible
bond
funds
experienced
combined
withdrawals
of
over
£2.7
billion.

The
decade-long
active/passive
flows
divergence
also
goes
on
too.
Passive
funds
recorded
net
inflows,
while
active
strategies
saw
further
outflows
during
the
quarter.
Among
index
funds,

global
large-cap
and

Europe
ex-UK
equity
funds
were
favoured
in
Q2,
with
combined
net
inflows
of
£4.3
billion.

UK
Equity
Funds
are
Compelling,
But
Investors
are
Ditching

The
broader
trend
of
outflows
from
UK
equity
funds
has
reflected
in
persistent
monthly
outflows
since
early
2020.
Data
shows
a
fall
in
the
sectors’
aggregate
AUM
from
a
peak
of
£280
billion
in
2017,
fallen
to
being
range-bound
around
£200
billion
in
2024.

Within
the
broader
equity
fund
universe,
some
of
the
main
beneficiaries
of
this
reallocation,
to
an
extent,
have
been
global,
US
and
emerging
markets
equity
as
well
as
sector
funds,
including
ecology,
infrastructure
and
healthcare.

Headwinds
driving
outflows
included
the
disappointing
relative
performance
to
other
markets,
as
well
as,
to
an
extent,
its
sector
composition.
This
includes
a
lower
exposure
to
technology
names
which,
in
contrast,
prevail
in
US
and
global
indices.
Yet,
for
value-orientated
investors,
the
compelling
valuations
offered
by
UK
stocks
still
make
a
good
case
for
investing
in
the
space.

Active
Equity
Strategies
are
Vulnerable
in
Passive
Shift

Competitive
fee
levels,
coupled
with
challenging
performance
for
some
active
managers,
are
some
of
the
reasons
behind
the
investors’
medium-term
tilt
to
passive
funds.
On
aggregate,
UK-domiciled
passive
funds
surpassed
£340
billion
in
net
assets,
an
all-time
high,
and
now
represent
30%
of
the
fund
universe,
according
to
Morningstar
data.
While
fund
houses
with
a
prevalence
of
active
strategies
have
faced
both
cost
and
outflows
pressures
driven
by
this
trend,
this
has
proven
to
be
a
tailwind
for
asset
managers
with
a
strong
passive
offering.

A
glance
at
what’s
underneath
these
figures
shows
that
most
outflows
from
the
active
fund
universe
were
driven
by
equity
funds,
while
fixed
income
funds
were
somewhat
more
resilient.

Over
the
last
three
years,
taking
only
active
strategies
into
consideration,
the
majority
of
categories
saw
net
outflows
albeit
to
varying
magnitudes.
Sector
categories
including
ecology,
however,
were
among
the
very
few
outliers.
In
the
fixed-income
universe,
despite
the
net
redemptions
from
the
asset
class,

global
bond
and

global
corporate
bond
funds
showed
signs
of
resilience.
Over
the
same
timeframe,
short-dated

Sterling
corporate
bond
strategies
gathered
the
most
inflows,
amounting
to
over
£1.8
billion,
although
only
modestly
offsetting
the
£6
billion
outflow
from

core
sterling
corporate
bond
strategies.

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