Interactive Investor

Fund sales booming, but sustainable strategies given thumbs down

Kyle Caldwell reports on the latest trends among fund investors over the summer months.

11th September 2023 09:45

by Kyle Caldwell from interactive investor

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Changing direction

Investor confidence in equity funds has returned, with the latest sales statistics from the Investment Association (IA) showing that inflows in July hit their highest levels since December 2021.

However, investors gave sustainable strategies the cold shoulder. Such funds saw £39 million withdrawn. In contrast, £816 million was put into equity funds.

Separate data from global funds network Calastone shows that for the past four months there’s been notable outflows from sustainable funds. Since May, almost £2 billion has been withdrawn.

The performance of sustainable funds, which are high growth in nature, has suffered owing to rising interest rates. Sustainable funds come in different forms, but all apply environment, social and governance (ESG) factors in their investment decision-making.   

It appears that some investors have sold on the back of short-term performance concerns. Edward Glyn, head of global markets at Calastone, says: Four months of outflows signals a new trend emerging that fund houses will have to work hard to counteract. ESG funds are mainly actively managed, so they have offered a helpful bulwark against the rise of index funds. With ESG now tracking backwards, index funds are once again beating their active counterparts for new capital.”

As well as equities, the latest IA figures show that bond funds were popular in July, with £520 million invested. Sterling corporate bond was the best-seller across all sectors, attracting £287 million. Also in the top five sector sellers were corporate bond funds, which gained £209 million.

Other sectors proving popular were volatility managed, global equity income, and short term money market, attracting £251 million, £243 million, and £132 million.

Overall, fund sales saw £1 billion of inflows in July. However, while equity funds have returned to favour there’s a divide in terms of regional exposure. Three areas investors have been buying are global, Japan, and Asia. However, the out-of-favour areas with outflows are Europe, North America and the UK. The latter saw £1 billion of outflows.

Chris Cummings, chief executive of the IA, said: “As the rate of inflation starts to fall more markedly and recession expectations moderate, sentiment is becoming more positive. While investors had been reducing their investments in recent months amid a very unclear economic outlook, July saw net sales of just over £1 billion. Equity, fixed income and mixed-asset funds all benefited from this renewed optimism, with inflows into equity funds reaching £816 million – the highest since December 2021.”

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