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Fund flow boom masks wider investor indecision; Buyers hope to dodge fallout from ESG talent war

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On the fence

Investors’ pandemic savings haven’t run dry yet: after a record end to Q1 for many platforms, initial evidence from April is that the 2021/22 tax year could prove just as positive. Retail fund sales into Isas stood at £1.5bn for the first month of the new tax year – the highest level since at least 2015 (prior to which calculation methodologies differed).

Where’s that money been going? Fund sales may still be buoyant, but it’s perhaps more relevant to note that investor preferences have again shifted markedly from one month to the next.

And the leap in equity funds sales, to £2.9bn from £1.1bn in March, was largely due to outflows ceasing in certain regions – like the US, Europe and Japan – rather than newfound booms.

So while global funds continued to rule the roost with a collective £1.6bn in inflows, no other region took in £250m or more. That speaks to the indecision seen in equity markets at the moment.

In bonds, it’s a similar story, though the sense of investors spreading their bets is given additional emphasis here by the Investment Association’s array of new sub-sectors. But with 17 sectors now available, it was the ‘unallocated’ grouping that was comfortably the most popular on the month, taking in almost £800m of fixed income’s £1.26bn total.

Still, the fundamentals underpinning the retail investment industry remain very healthy. Allocators of all stripes are finding it difficult to pick and choose on a tactical basis, but the structural preferences are clear.

Tracker funds enjoyed another booming month, with £2.9bn in net flows, and responsible investments did similar. And February’s £200m in redemptions from responsible funds can now be confirmed as a blip – given it’s been followed by two consecutive months of record £1.6bn flows.

Bidding war

The structural demand for all things ESG isn’t confined to fund or wealth management, of course. The demands those allocators are making of the wider corporate universe have been felt for some time; recent victories of note only underline that this change is here to stay.

The FT reported over the weekend that these shifts are producing an ‘ESG talent war’, as companies search for professionals with ESG expertise and “demand far outstrips supply”.

Clearly, fund managers aren’t observing this change from the sidelines – they will be searching for many of the same people in their own bids to reach net zero or develop more sustainable businesses.

From DFMs’ perspective, it’s worth considering whether this pressure might have an impact on fund selection practices, too.

Manager moves are nothing new for the fund buyer community, but it’s fair to say ESG managers have remained relatively immune thus far.

There has been the odd sign of activity on this front: Artemis hiring Kames’ ESG equity managers this time last year, for example.

But in the main, most selectors’ preferred ESG teams have been in place for some time – either having risen in prominence over the years, or brought in a while back, such as Liontrust’s 2017 deal for Alliance Trust Investments.

As ESG managers’ asset bases and importance to their parent firms continues to escalate, so will the interest from other parties. Given the industry’s general predilection for M&A activity, it may be that companies with ESG teams are increasingly acquired wholesale by rivals, rather than those teams being lifted out. That would present less of an issue for selectors.

Managers setting up on their own must also be a fainter prospect than usual, given the resource that ESG investing requires. The prospect of more and more teams being tempted to move elsewhere must moving up the agenda all the same.

Selling out

Ruffer’s Bitcoin adventure is at an end, for now at least. The company could hardly have timed its move better, having announced this morning it exited its remaining positions in April prior to the sell-off seen that month.

On top of that, the company’s recent return to gold has also proven apposite, given the way bullion has begun to rally again in recent weeks.

But its five-month dalliance with Bitcoin nonetheless emphasises why the vast majority of investment managers continue to steer well clear. Few wealth managers would back themselves – or others - to use clients’ money to make a short-term trading decision. Ruffer’s success is unlikely to be viewed as a beacon for others in the wealth management community.

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