The trend of professional investors ignoring UK equity funds appeared to be put on hold in October while global property offerings proved popular as Brexit loomed large over the market for much of the month.
The IA UK All Companies sector has struggled in the years since the UK voted to leave the EU, with the peer group being hit by outflows in most months.
In keeping with this, the fund pickers who use FE Analytics have consistently spent less time researching IA UK All Companies strategies. It remains the most heavily researched sector on the platform, but its popularity has decreased over the last three years.
Source: FE Analytics Market Intel Tool
However, as the chart above shows, this trend paused in October as the sector was the one that benefited from the biggest increase in its FE Analytics research share when compared with the previous 12 months.
Between October 2018 and the end of September 2019, the peer group accounted for 11.2 per cent of all research into Investment Association funds. This climbed to 12.3 per cent last month, although it is unclear whether this is due to renewed optimism about the UK or greater concern about the impact of Brexit.
The most heavily researched IA UK All Companies funds in October were LF Lindsell Train UK Equity, Liontrust Special Situations, Invesco High Income (UK), Merian UK Mid Cap and TB Evenlode Income but as we will see later in this article other members of the sector are climbing in popularity.
In addition, there was more research being carried out into the IA UK Equity Income and IA UK Smaller Companies sectors.
IA Global funds were also more heavily researched last month, reflecting a continued interest in strategies offering equity exposure outside of the UK. However, Fundsmith Equity – the largest member of the sector and the most popular fund on FE Analytics – got less attention in October.
However, the individual fund that saw the biggest increase in its share of all the research being carried out on FE Analytics when compared with the previous 12 months was iShares Global Property Securities Equity Index (UK).
The fund – which was also at the top of list in September 2019 – is a tracker that follows the FTSE EPRA/ NAREIT Developed index. This index is made up of real estate investment trusts (REITs) and real estate holding & development companies across the developed world.
Source: FE Analytics Market Intel Tool
In general, UK property funds have been shunned by investors as the Brexit process unfolded. Many were suspended immediately after the referendum due to liquidity problems, they are being researched less on FE Analytics and have witnessed steady outflows.
Laura Suter, personal finance analyst at AJ Bell, said: “Property funds have seen consistent outflows over the past year, as UK retail investors have withdrawn more than £4bn of money from the leading UK direct property funds. Worries about the Brexit impact on property values have made investors nervous, as well as concerns about liquidity in the funds.”
In contrast, money has been going into the IA Property Other peer group – which is home to funds that are not heavily exposed in UK direct property – while advisers have been increasing their research into the sector.
The iShares Global Property Securities Equity Index (UK) tracker is a member of this peer group, as is the active Schroder Global Cities Real Estate fund, in fifth place.
IA Property Other offerings such as Janus Henderson Horizon Asia-Pacific Property Equities, ASI Global Real Estate and Janus Henderson Horizon Pan European Property Equities also saw increased research last month.
In second place on the above table, we have an IA UK All Companies member: Royal London Sustainable Leaders Trust.
Performance of fund vs sector over 5yrs
Source: FE Analytics
This fund has a strong track record – sitting in the peer group’s top quartile over one, three, five and 10 years. Its scores well in FE fundinfo’s ratings as it holds five Crowns and is run by Alpha Manager Mike Fox.
The FE Invest team said: “The manager’s investment style brings something different compared to other managers investing in UK equities, as he combines the principles of socially-responsible investment with in-depth company financial analysis.
“This process guides him to companies considered leaders in environmental, social and governance issues with the potential for growth. Fox’s track record highlights the benefits of his style.”
The above few funds also hint at another trend that was seen last month: the continued growth of interest in funds with an environmental, social and governance (ESG) focus.
As the table above shows, several funds with an ESG bias were among those benefitting from the strongest growth in research activity last month. These include Royal London Sustainable Leaders Trust and another two Royal London funds run by Fox, VT Gravis Clean Energy Income, Vanguard SRI Global Stock and Brown Advisory US Sustainable Growth.