An “unprecedented” amount of money was pulled out of equity funds last week in the coronavirus sell-off, according to data from funds network Calastone, with active strategies taking the brunt of the blow. 
Concerns that the coronavirus outbreak was spreading outside of China panicked investors last week and stock markets tanked across the board. Global equities had their worst week since the financial crisis of 2008.
Of course, funds didn’t escape this and 3,651 funds out of the 4,000 in the Investment Association universe – or 91.3 per cent – made a loss. Some 22 per cent of funds fell 10 per cent or more.
The Calastone Fund Flow Index (FFI) examines inflows and outflows of funds, with a reading of a score of 50 meaning buys equalled sells during a month. The Equity FFI came back at 49.1 points for the whole of February but it had dropped to just 37.7 – its lowest ever reading – when the sell-off took place in the final week.
Equity fund net flows in Feb 2020 (by week)
Source: Calastone
Edward Glyn, head of global markets at Calastone, said: “The apparently modest £348m net outflow for February belied the extent of the reversal in investor sentiment. Investors bought equity funds enthusiastically in the first three weeks of February, having shrugged off an initial flutter of virus-induced nerves at the end of January.
“But when, on Monday 24 February, the markets began their worst week in over a decade as the virus took hold in one country after another, investors withdrew their capital from equity funds at their fastest rate on Calastone’s record: in the last week of February alone they sold an unprecedented net £1.55bn of equity holdings.”
The outflows were felt most keenly by active equity funds, which shed £1.18bn of capital in February. Passive funds, on the other hand, took inflows of £832m over the course of the month after minor outflows during the sell-off.
This means that active equity funds suffered 98 per cent of the outflows that happened the last five days of February.
In terms of fund sectors, global equity funds were hardest hit and had their worst month recorded by the Calastone FFI. Some £309m left the sector in February, but this was the result of £881m in outflows during the final week reversing earlier inflows.
Calastone FFI for global and UK funds
Source: Calastone
Asia, Europe and specialist regional, including funds focused on China, and sector funds were also heavily affected by outflows.
However, UK equity funds were “relatively unscathed”; they took in £227m of fresh money for entire month and were only hit with significant selling on the very last day of February, when £107m came out as the FTSE 100 dropped to its lowest level in almost five years.
“The curiously relaxed approach to funds focused on UK equities reflected the limited number of infections, as well as the extremely low valuations for UK shares,” Glyn added. “That was enough to keep the sellers at bay for a time, but by the last day of the month there were signs of capitulation even for this sector too.”
There were “modest” net inflows to fixed-income and mixed-asset funds.
But these were not enough to offset the outflows suffered by equities – especially as outflows were experienced by strategies investing in other assets such as alternatives, properties commodities and absolute return.
“Added all together, February 2020 was only the fourth month on record to see net outflows across the sum of all types of fund, the last time being October 2016. UK investors pulled a net £144m out of their fund holdings, opting to sit out the volatility in cash,” Glyn finished.