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Fund flow surge points to long-term time horizons; Long/short funds vs meme stocks

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Staying put

Another brief sign of life for the domestic market, courtesy of latest Investment Association data: UK all-cap funds took in net new money for only the second time in the past nine months in June.

But what investors give with one hand, they often take away with the other. The data suggests the move came at the expense of UK small-cap funds, which saw an eight-month winning streak snapped by a minor net outflow in June.

In fixed income, the trend was determinedly away from UK portfolios. UK inflation-linked bonds, sterling corporate bond and strategic bond funds all saw modest outflows on the month, with only gilt funds holding firm. The two best-selling fixed income sectors were the global corporate bond and the global inflation-linked groupings.

Elsewhere, it was more of the same for most investors: European, global and US equity funds all enjoyed another month of healthy interest, as did multi-asset funds of all stripes.

Turn away from individual sectors to look at structural trends, and the consistency is even clearer: tracker funds continue to account for 40p-50p of every £1 in net new money, while sales of responsible investment funds are even steadier. Monthly net sales have totalled between £1.1bn and £1.6bn in 10 of the last 12 months.

More to the point, after a three-month period in which fund sales into Isa wrappers exceeded the amount invested in personal pensions, normal service has now resumed. Investors’ long-term time horizons look as evident as they ever were.

Short shrift

There are those who're still positioning for short-term shifts, however. The FT reports today that James Hanbury’s Brook Absolute Return fund has taken a bet against AMC, the US cinema chain and latter day ‘meme stock’.

Despite the initial sense of disbelief that accompanied GameStop’s soaring price in January, the Reddit-inspired army of retail traders have proven capable of holding their own. GameStop remains up 3,000 per cent over the past 12 months, while AMC shares began the year at $2, hit $20 in January and traded above $60 as of June. Robinhood, the trading platform of choice for said investors, closed 50 per cent higher on Wednesday following its IPO last week.

There have been windows of opportunity for those wanting to take the other side. A poor start to August means AMC has already halved since its June highs; Hanbury may have already made a sizeable return on his bet.

But not all funds’ attempts to bet against retail investors’ favoured holdings have proven successful. Asset Allocator understands one fund buyer holding the Sanlam US Absolute Return fund exited earlier this summer, pointing to losses they say were taken on a short position in an unnamed meme stock.

The point of disagreement wasn’t so much about the fundamentals of said company - most professional investors concur that sky-high valuations for these stocks have little relationship reality - but the wisdom of betting against their share prices in the current environment.

Morningstar data shows the fund shed 15 per cent in the month to June 24. Sanlam has subsequently shut the strategy less than two years after launch. It said in a statement the move was part of an “ongoing review process” and will allow manager Adour Sarkissian to focus on his other strategies. Whether Hanbury ultimately has more joy is still up for debate.

Changing course?

The Bank of England’s latest policy meeting contained a hawkish surprise of its own today, courtesy of the suggestion that a “modest tightening of monetary policy” is likely to occur at some point over the next couple of years.

The central bank now thinks inflation could well rise to 4 per cent by the end of 2021, compared with a previous prediction of 2.5 per cent.

As a result, the market consensus is now pricing in an interest rate hike in 2022. But not all are convinced: those who think inflation will prove relatively transitory still favour a 2023 shift. And if action is taken next year, most investors would hope for better-than-expected growth to be the driver – rather than some kind of stagflationary environment.

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