More than meets the eye

Appearances can be deceptive - particularly when it comes to finding out what's going on in the world of fund selection.

Newly released data on September's fund flow activity looks, at first glance, like more of the same - risk assets are out of favour, flexible bond strategies and passives are on the up. But closer inspection reveals a more complicated picture.

Strip out asset managers’ internal reallocation of assets and pension fund moves, and there were one or two notable winners in September. In the retail market, those were not the usual names. Both the JOHCM UK Dynamic fund and Baillie Gifford’s Japanese fund took in an estimated £150m on the month, according to Morningstar, their highest amounts for almost two years.

Each could be seen as a contrarian call of sorts, given the JOHCM fund is third quartile over one year and Baillie Gifford hasn’t kept pace with its sector over the past six months.

It’s certainly also true that some erstwhile favourites have continued to see interest ease off in recent weeks. Fundsmith Equity did see some money return after posting its first net redemptions for six years in August, but a £36m influx remains well below its recent average.

Lindsell Train UK Equity, meanwhile, endured the fourth-highest redemption levels of any UK-domiciled fund in September. A £375m net withdrawal is the highest amount on record for the strategy. That, and the strategy’s recent dip in performance, will be food for thought for the wealth managers who have continued to buy in in recent months.

On a sector level, meanwhile, there was also one notable change taking place. Emerging market equity funds reversed six consecutive months of ouflows by taking in around £200m on the month. That amount is more than they garnered at any stage during their brief return to favour at the turn of the year. Moves like these suggest the fund selection consensus is starting to break down a little as the fourth quarter begins.

Aiming high

DFMs might be giving further thought to UK assets as a whole, but the racier end of the domestic equity market is yet to catch a break. From quite public performance woes to the threat of less beneficial tax treatment in future, Aim stocks have had a rougher ride than most.

Naturally, risks like these are par for the course when it comes to higher-growth companies. What’s less common in these parts is any expectation of yield. Capital-hungry as they are, Aim stocks are unlikely to pay as much as their mainstream counterparts, if anything.

There’s some indication this might be changing. Link Group’s latest Aim Dividend Monitor, assessing the state of play in the first half of 2019, registered a 23.9 per cent year-on-year rise in Aim dividends, equivalent to underlying growth of nearly 14 per cent. The market’s prospective yield has risen from 1.2 to 1.5 per cent.

That’s still low, and driven in part by falling prices. But Link points to a longer-term trend: the proportion of Aim companies paying a dividend has risen from 26 per cent in 2012 to an expected 35 per cent this year. And market constituents are generally showing a greater enthusiasm for investor payouts:

Not only has the proportion of AIM companies paying dividends risen, but those coming to market are doing so earlier, and those paying them are growing their dividends rapidly.

With the average dividend-paying Aim stock offering some 2.5 per cent, investors can at least hope for an extra source of structural support within the market. It’s a rare silver lining for those running Aim portfolios.

Riding it out

The winners of the 2019 FTAdviser Investment 100 Club are announced today, and as ever provide a snapshot of the best-performing funds in the UK investment universe.

Those funds are assessed on a quantitative basis over both one and five years, before being assessed by a panel of judges. 

But in many ways it's as valuable to look at which strategies have made it into the Club as a whole for two consecutive years or more. This time around, that number amounts to 11 of the 85 funds, including a trio of corporate bond names, a couple of mixed-asset strategies - Royal London Sustainable World and eventual winner Liontrust Sustainable Future Absolute Growth - and UK equity strategies like Buffettology and Baillie Gifford UK Alpha.

The investment styles in favour in early 2019 were much the same as those that ruled the roost in early 2018. But these funds' place in the list does mean they were also able to effectively overcome the major drawdown of late last year. At a time when many are fearing something similar happening this year, that's an achievement not to be sniffed at.