In the last month two widely-watched surveys have confirmed that there have been substantial outflows from funds across Europe and the UK.
Both the European Fund and Asset Management Association (EFAMA) funds fact sheet and the Calastone funds flow index exposed on-going net sales of UCITS and AIFs.
With inflation at the highest level in over a generation, the on-going situation in Ukraine and continuing supply chain issues, it is unsurprising that some capital has moved to safe-havens, reflecting a risk-off stance.
There is also the unwinding of central bank support across Europe, the UK and the USA, and looming interest rate hikes.
Edward Glyn, head of global markets at Calastone, said of UK funds: “It’s relatively unusual for equity funds overall to see outflows. There is instead an in-built bias towards net investment simply because British investors steadily put away a portion of their incomes each month.”
Mr Glyn sees two factors combining to squeeze UK equity funds.
Unfavourable conditions in equity markets, with high volatility and large losses in risky segments have dampened enthusiasm for adding new capital, he says.
There is also the cost of living crisis in several countries, with households having to cut back on savings as day to day expenses rise.
Bernard Delbecque, senior director for economics and research at EFAMA concurs: “Against this backdrop, investors are likely to remain cautious. Still, some will seize the opportunities offered by the decline in stocks to buy the dip, which always [offsets] the size of withdrawals from other investors.”
Mr Delbecque expects that unless the global and economic situation deteriorates further the second half of 2022 won’t have the same level of outflows as the first months.
“On the contrary, some good news could shift money back to funds, as there are not many alternatives for investors, especially institutional investors who must continue investing the new money flowing into their accounts.”
But the net sales across funds seen at the start of 2022 has not been uniform across all funds. Both ESG focused and value/income funds have bucked the broader trend, and enjoyed net inflows for YTD 2022.
The preference for investments that are ESG or UN sustainable development goals compliant has come from across the investor spectrum, from retail to institutional to family offices.
The inflows seen in 2020 and 2021 have continued this year, in all western markets.
At the same time, the shift in investor preference to value/income funds is unsurprising in a higher inflation and higher interest rate environment.
Mr Glyn commented: “The turnaround for equity income funds reflects the relative inflation protection that income-generating stocks provide. This has held true during 2022’s market convulsions – yield stocks have outperformed this year and investors are noticing.”
He added that there are signs that property funds may be coming back into favour, following a near four year run of monthly outflows. Net redemptions in May 2022 were substantially lower than previous months.
Two fund managers who focus on value/income stocks, Patrick Nielsen, deputy general manager at MAPFRE, and Ignacio Olave, partner at Azvalor Asset Management, are upbeat about the prospects for H2 2022.
Mr Olave commented: “Perhaps due to surging inflation, perhaps to a rising interest rate environment, or simply, perhaps, to the market just reassessing the fundamentals of several sectors and companies according to its cyclical nature, value investing strategies and managers are making a comeback in 2022.”
He added that in the value segment, in particular, any short-term underperformance is seen as a buying opportunity.
Mr Neilson pointed out that fund outflows have been concentrated in the “hyper growth” part of the markets.
He said: “Funds managed with a value approach are a having a better time lately and clients are reacting positively. We can confirm that as our funds have stayed clear from the expansive/hyper growth segments and are managed with a value orientated approach they are weathering the present downturn satisfactorily.”
Sharon Bentley-Hamlyn, investment manager at Aubrey Capital, concurs: “When the market does turn there will be companies that bounce back dramatically and outstrip the index.
“By sticking with businesses that can self-finance strong growth through internally generated cashflow, we shall be in position to take full advantage of this turnaround when it materialises.”