UK investors poured cash into bond and absolute return funds during April, the latest figures from the Investment Association show, after dropping equity portfolios for the fourth month in a row.
The trade body, which recently unveiled new monthly statistics showing the inflows and outflows from domestic investors UK-domiciled funds, says fixed income funds were the most popular asset class in April with net retail sales of £679m.
Mixed asset funds came in second place with £679m in net retail sales to UK investors, while money market funds were in third with £157m. Equity funds, on the other hand, were hit with a net retail outflow of £635m.
On a sector level, IA Targeted Absolute Return sector came in top place after attracting £742m in fresh retail money. The IA Sterling Corporate Bond sector held onto fourth place while the IA Sterling Strategic Bond peer group jumped from 12th place to fifth.
Source: FE Analytics
Tilney Bestinvest’s Jason Hollands says the data clearly shows that UK retail investors have adopted a “very cautious” stance in the opening months of the year.
“Some of this risk averse behaviour may be down to the diet of apocalyptic rhetoric about Brexit being dished out on daily basis which is clearly spooking retail investors, driving them out of risk assets including UK equities and property funds,” he added.
“Ironically however in performance terms equities had a decent April and in May the main IA UK equity sectors have performed better than most.”
In the following article, FE Trustnet takes a closer look at the funds these risk-adverse investors were buying in April as well as over the past year.
IA Targeted Absolute Return
Source: FE Analytics
While Standard Life Investments Global Absolute Return Strategies (GARS) remains the largest fund in the peer group, some of its closest rivals were the most popular products in April.
FE Analytics shows that Aviva Investors Multi Strategy Target Return was the best selling fund in the month with net inflows of £432.40m while Aviva Investors Multi Strategy Target Income comes in second place with £361.76m.
Both are run by Peter Fitzgerald’s multi-asset team but were designed with a great deal of input from Aviva Investors chief executive Euan Munro, who was one of the architects of GARS.
Meanwhile, Invesco Perpetual Global Targeted Returns – which was launched by former GARS members David Millar, Dave Jubb and Richard Batty – holds third place after attracting net inflows of £222.04m.
Over the past year, all three of these funds have outperformed GARS – which has made a loss of just over 3 per cent. The Invesco Perpetual offering leads the pack with a total return of close to 3 per cent.
Performance of funds over 1yr
Source: FE Analytics
It’s been Invesco Perpetual Global Targeted Returns that has seen the sector’s highest net inflows over the past 12 months, according to FE Analytics, after it took in around £3.8bn. Standard Life Investments’s flagship GARS fund is in second place with £1.6bn, while Aviva Investors Multi Strategy Target Return, Henderson UK Absolute Return and Aviva Investors Multi Strategy Target Income hold the next three spots.
IA Sterling Corporate Bond
Source: FE Analytics
The £3.5bn Scottish Widows Corporate Bond fund, which is managed by Aberdeen's pan-European credit team with Luke Hickmore named as deputy, attracted the most inflows in this sector during April after taking in just over £200m.
The fund has turned in fourth quartile total returns over one and three years, but relative performance has strengthened more recently: it’s now in the third quartile over six months and in the top quartile over three months.
Of the 10 funds on the above list, Kames Investment Grade Bond and Baillie Gifford Investment Grade Long Bond are the highly rated by FE’s analysts as they both hold four FE Crowns. As can be seen in the graph below, both have outperformed their average peer by a decent margin over the past five years.
Fidelity Moneybuilder Income, which is headed by FE Alpha Manager Ian Spreadbury, appears on the FE Invest Approved list, where it is highlighted for the manager’s cautious approach to investing and its potential as a good core fund for the long term. It is also ahead of the peer group over five years.
Performance of funds vs sector over 5yrs
Source: FE Analytics
FE Analytics shows that over the past 12 months, Royal London Sterling Credit has been the most popular fund from the IA Sterling Corporate Bond sector, followed by Threadneedle UK Short Dated Corporate Bond, L&G Sterling Corporate Bond Index, Fidelity Moneybuilder Income and Rathbone Ethical Bond.
IA Sterling Strategic Bond
Source: FE Analytics
The largest member of this sector has been experiencing net outflows recently – M&G Optimal Income has shed around £8.6bn over the last 12 months – leaving other members of the sector to hoover up fresh cash.
During April, it was John Pattullo and Jenna Bernard’s Henderson Strategic Bond that took the most after gaining £28.35m.
The fund, which is a member of the FE Invest Approved list, tends to have bias towards more defensive sectors as the manager believe the global economy is going into a period of ‘secular stagnation’ that will result in low growth, low volatility, low default rates and low interest rates for the years to come.
The FE Research teams adds that the fund could be a good option for investors seeking long-term returns as its flexible approach means it can be more volatile than the typical bond fund.
The next two funds also feature in the FE Invest Approved list. Adrian Gosden and Alex Ralph's Artemis High Income is highlighted for investors seeking an attractive yield, owing to the managers’ bottom-up focus on companies that can generate cash; Fidelity Strategic Bond is noted for the cautious approach of Spreadbury and tipped as a good diversifier for equity exposure.
All three have outperformed their average peer in the past five years, with the Artemis fund in the lead by a wide margin.
Performance of funds vs sector over 5yrs
Source: FE Analytics
According to FE Analytics, TwentyFour Asset Management’s Dynamic Bond fund has been the sector’s best seller of the past 12 months with net inflows of £690m. It’s followed by Henderson Strategic Bond, Jupiter Strategic Bond, Aviva Investors Strategic Bond and Artemis High Income.
