UK equity fund withdrawals hit £12bn since Brexit

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UK equity fund withdrawals hit £12bn since Brexit

The Investment Association fund stats for March – the peak ISA season – show some interesting trends, writes Nick Sudbury. 

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Brexit tends to divide opinion, but if there is one area that it has brought together it is investors, who have now withdrawn a colossal £12bn from UK equity funds since the vote to leave the EU in June 2016.

 The worst casualty has been the UK All Companies sector with people pulling out £365m in March alone. It is thought that the biggest outflows included Woodford Equity Income (£158m), Invesco High Income (£121m) and Invesco Income (£93m).

This is now a well-established trend with two years of continuous withdrawals during which retail investors have taken out a massive £6.9bn from the sector, with the dull performance − the average fund has returned just 6.3% over the period – doing nothing to stem the tide.

When you add in the other UK equity categories, the total withdrawals since the referendum weigh in at a hefty £12bn, yet despite this the UK All Companies sector is still the biggest, with assets under management of £168.3bn.

Peak fund buying season

March is traditionally the peak fund buying season, with many investors leaving it until the last minute to take advantage of their ISA allowance ahead of the 5th April deadline, but this year was something of a damp squib. Retail fund sales were actually negative for the month as people took out a net £205m, whereas in March 2018 there were healthy inflows of £1,605m.

It was actually the sixth month in a row of net redemptions, which suggests that retail investors are pretty nervous. This was further underlined by a defensive switch from equities to bonds, with £630m taken out of stocks and £810m going into fixed income, with the main beneficiaries being the UK Strategic Bond funds that have the flexibility to invest anywhere in the fixed income spectrum.

The least popular area during the month was European equity with net redemptions of £412m, closely followed by the Targeted Absolute Return funds at £401m. The latter have now experienced nine consecutive months of outflows during which a total of £4.4bn has been withdrawn.

It appears that the majority of this money has come out of the handful of giants in the sector that continue to disappoint. Data from Morningstar, which includes retail and institutional flows, shows that the main losers included SLI GARS (£877m), Newton Real Return (£268m), Artemis US Absolute Return (£255m) and Invesco GARS (£92m).

Global Equity attracted the most inflows

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One of the few bright spots was the Global Equity sector, which attracted the most inflows at £691m during the month. This took the total for the year to just over £4bn.

A key driver was the continued popularity of Fundsmith Equity, which has delivered some excellent returns. It saw estimated inflows of £94m and is now the biggest fund with total assets of £18.6bn. Another star performer, Lindsell Train Global Equity, also continued to do well.

In March there were net retail inflows of £90m into funds held specifically in ISAs, which was the first inflow since April 2018. Total assets under management in open-ended funds via ISAs were £161.2bn at the end of month, representing 13.4% of the total industry assets.

Tracker funds have done particularly well with net retail inflows in March of £951m. These have grown enormously in recent years and now account for £194.2bn, or 16.1% of the market.

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