Market jitters cause investors to dump passive funds
17th October 2022 10:45
by Kyle Caldwell from interactive investor
For the first time since the start of the pandemic investors have been selling out of exchange-traded funds.
In the latest sign that investor sentiment is approaching rock-bottom, new data shows that in the third quarter exchange-traded funds (ETF) saw money withdrawn for the first time in two and a half years.
The research from Morningstar shows that over the three-month period €7.9 billion (£6.8 billion) was withdrawn from the European ETF market, which includes commodity strategies.
In the first quarter of 2020, the last time that ETFs posted outflows, €4.4 billion was withdrawn in response to the emergence of the Covid-19 pandemic.
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The fact that outflows are higher reflects how weak investor sentiment is at the moment. Among the headwinds are the war in Ukraine, soaring levels of inflation, higher interest rates, and the increased likelihood of a global recession.Â
Given this backdrop, as well as a notable shortage of potential positive catalysts for stock markets, investors have reduced their exposure to markets with €6.6 billion withdrawn from equity ETFs.
Bonds, however, have bucked the trend, with €8.1 billion invested. This is an increase from €3.2 billion in the second quarter.
The buying behaviour in the European ETF market is mirrored in the UK funds’ market. The latest figures from the Investment Association (IA) show that a record amount of withdrawals were made from equity funds in August.
Almost £3 billion was pulled, which is the highest monthly outflow on record. This was heavily influenced by UK equity and global equity funds proving unpopular, with £1 billion and £828 million withdrawn respectively.
- The top 10 most-popular investment funds: September 2022Â
- The funds, ETFs and trusts ii customers buy every month
- Funds and trusts four professionals are buying and selling: Q4 20222Â
Overall, investors took £2.6 billion out of funds, which marks the seventh month of outflows this year. Year-to-date, £14.6 billion has been withdrawn.
Bond funds, however, saw inflows, and in August £1 billion was invested.
However, among customers of interactive investor, passive is proving more popular than active funds.
In response to stock market declines, investors have been ditching active funds. In September, there was just one active fund – Fundsmith Equity – among our top 10 most-bought funds.
The most-popular passive funds last month, in terms of the number of buys, were: Vanguard LifeStrategy 80% Equity, Vanguard US Equity Index, Vanguard LifeStrategy 100% Equity, Vanguard FTSE Global All Cap Index, Vanguard LifeStrategy 60% Equity, L&G Global Technology Index, Vanguard FTSE Developed World Ex UK Equity Index, HSBC American Index and Fidelity Index World.
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