How fund buyers responded to the vaccine rally; Mainstream plays start to lose ground
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Old normal
Figures from Morningstar support the notion that November’s vaccine-inspired market moves didn’t shake up fund flows as much as some suspected.
Earlier stats have indicated a surge in equity flows on the month, and that’s yet to be contested by other data providers. But the individual decisions that make up this collective assessment don’t look too different from months gone by.
Because when it comes to the best sellers, November could almost have been mistaken for any other month of the year. Fundsmith Equity, sustainable offerings from Royal London and Baillie Gifford, and the latter’s American fund were among the active products leading the way.
That said, while data from Calastone earlier this month suggested UK equity funds remained on the backburner, one or two did put in a good showing. Estimated net flows of £660m for Man GLG Income and £240m for Premier Miton UK Multi-Cap Income suggests some interest in dividend payers at the very least.
Outside the UK, the biggest standout was Premier Miton European Opps, which similarly saw several hundred million enter its coffers. At the other end of the table, however, there wasn’t much sign of respite for value strategies despite the vaccine news: recovery funds continue to see more money exit.
One area where attitudes have seemingly changed for the worse is gold funds. Net outflows underline that buyers’ belief in the precious metal’s diversifying qualities has been knocked in recent weeks - for a number of reasons But for now, their other asset allocation views remain more or less intact.
Scores on the doors
The final scores for 2020 are almost in, and things are looking pretty positive all told. With less than 10 trading days left in the year, most major indices – and private client benchmarks – are in the black.
As far as funds are concerned, the main exception remains the same: UK growth and UK income strategies will require a major rally to end up with positive returns for 2020. Across the world, only Greece, Nigeria, Egypt and Chile have delivered worse returns this year, in US dollar terms, than UK wealth managers’ domestic market.
A catalyst for a UK rally may yet emerge over the next week, of course. But for now, just 12 per cent of all UK All Companies and UK Equity Income funds have avoided negative returns so far this year – and almost every one is focused on sustainable investments or looks lower down the cap scale.
The growing impetus behind small-cap investing has continued to accelerate in recent weeks. The typical UK small-cap fund hasn’t done much in absolute terms, posting an average return of 2 per cent, but the same can’t be said for similar groupings.
The European, Japanese and US smaller companies sectors all rank in the top 10 of the year, and each has outperformed their all-cap equivalent.
That’s particularly notable in the US, where small caps overtook mainstream funds around the time of the first vaccine announcement last month. For all the focus on the Faangs this year, it’s smaller companies that seem likely to come out on top. On a risk-adjusted basis, that means little to DFMs –the whole-of-market portfolios that form a much larger part of their strategies, after all. But it is food for thought as 2021 approaches.
Coining it in
Fund buyers who have been selling gold exposures, as reflected in the fund flows discussed above, will have been grappling with the big question for all alternatives positions: what replaces it? For Ruffer, as per yesterday’s news, the answer is seemingly bitcoin. A “small but potent insurance policy” is how the firm described the asset, according to a memo seen by Reuters.
Those who still view cryptocurrency as a bubble of sorts will see that as a provocative statement. Irrespective of bitcoin’s qualities, the move is interesting because it represents the first time a major UK wealth player has introduced cryptocurrency into a conventional asset allocation framework. It’s unlikely to herald an opening of the floodgates, but it may go a little way to giving the asset more credibility with professional investors.
