UK funds saw a record monthly level of outflows in March due to the coronavirus pandemic, though passive funds enjoyed unprecedented inflows.
As stock markets cratered over fears about the impact of the outbreak, investors withdrew £3.1bn worth of fund holdings, according to monthly data from Calastone.
This was three times the previous worst month, which was June 2016 when Britain voted for Brexit.
While the FTSE 100 and FTSE 250 plunged, along with stock markets in Wall Street, Europe and around the world, equity outflows reached just £244mln overall, with inflows in three of the four weeks.
However, this overall figure hides vast differences between passive equity funds and active equity funds, and between funds focused on different geographies.
Passive funds, such as ETFs, saw inflows of £1.4bn, which Calastone said was a record month.
This came as £1.7bn poured out of active funds, the segment’s second-worst month on record for an industry that includes the likes of Jupiter Fund Management PLC (LON:JUP), Man Group Ltd (LON:EMG), Ashmore Group PLC (LON:ASHM), Standard Life Aberdeen PLC (LON:SLA), Aviva PLC (LON:AV.) and Schroders PLC (LON:SDRC).
It will also have had mixed affects for investment supermarkets like Hargreaves Lansdown PLC (LON:HL.) and AJ Bell PLC (LON:AJB), plus wealth managers like St James’s Place PLC (LON:STJ), Rathbone Brothers (LON:RAT), Charles Stanley (LON:CAY)) and Brooks McDonald (LON:BRK).
“The massive divergence between passive and active funds can be partially explained by long-term trends driving the growth of index investing and by the hard anchor of monthly direct debits,” said Edward Glyn, head of global market at Calastone, though he said this wasn’t enough on their own to account for the huge disparity in March.
“It seems investors attempting to catch market troughs may simply be focusing on timing and just relying on the index to do the rest.
“But in fact, active managers tend to do rather well in difficult times for stock markets so the big outflows from that segment at a time of such big inflows to passive funds are a little surprising.”
By geographic region, European equity funds fared worst, seeing around £500mln of outflows, their second worst outflow on record, followed by Asian and North American funds, while global funds enjoyed overall inflows.
UK equity funds had their second-best month in four years, with inflows of £508mln only bested by the post-election flows in December.
These UK funds were also the first major category to see buying interest as calm returned, Calastone, with Glyn viewing the preference for UK-equity funds as reflecting a home-market bias and “the exceptionally low valuation of the UK market compared to its international peers”.
While equities saw a relatively small amount of outflows, fixed income funds, however, leaked £3.7bn of capital, some 13 times worse than the previous worst month, which was January last year.
“Market crises are superficially all the same as volatility soars and asset prices collapse, but they differ enormously in the detail,” Glyn said.
“The temporary loss of fixed income as a safe-haven asset class to counterbalance some of the huge losses in equity markets left investors with little option but to ride it out or park their money in cash or cash-equivalents like money market funds.
“Equally the courage of investors not to dump their equity holdings is surprising. The COVID-19 crisis has undoubtedly had a bigger impact than the EU Referendum shock, yet so far equity funds are weathering the storm rather well.
“However long this crisis lasts and whatever other twists and turns it has in store, it has one thing in common with all the others. It will pass.”