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Misery prefers company as Smith joins outflows party; Party in the USA for JPM fund

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Joining the party

The summer party season may have arrived during a spell of remarkably clement weather, but the mood at such gatherings is invariably darkened by any mention of markets and flows. 

The latest Morningstar data in particular is enough to turn the most raucous party sour, as it shows May was the worst month for flows from UK retail funds since March 2020, when we were all coming to terms with the enormity of the pandemic. 

The withdrawals were broadly based across asset classes, with Aviva Investors and Baillie Gifford topping the active manager withdrawal charts, with more than £1bn leaving each firm during the month. Baillie Gifford's billion was mostly accounted for by one of its lower profile mandates, its European equity fund, where £879mn has walked out the door since the start of 2022, while Aviva Investors saw sharp outflows from its corporate bond and target return funds.

While Terry Smith's Fundsmith has had outflows this year, he has seemed to be emerging relatively unscathed, at least relative to peers such as Nick Train. 

But May proved to be the month when even he faced the music and £622m was pulled. 

That's the worst month on record for Fundsmith, in what was a terrible month for the large cap equity sector with outflows of £758m. 

As our chart below shows, Fundsmith Equity has outperformed against Lindsell Train Global Equity by a wide margin over the past year, but the gap has narrowed more recently, which may explain the recent outflows for the former.

Fundsmith Equity continues to be popular with the allocators on our database, being held in six portfolios - though two DFMs have sold it since the start of the year. 

If you are looking for a more upbeat summer party, maybe check out any invitations from the infrastructure guys. They had a strong May, with inflows into the equity infrastructure sector of £273m (the entire sector is £7bn in size).

Three funds accounted for the bulk of that, FTF Clearbridge Global Infrastructure, M&G Global Listed Infrastructure, and the L&G Global Infrastructure Index fund. 

The Clearbridge fund and the L&G fund are among the most popular infrastructure equity funds on our database, being both owned by six and five DFMs respectively (L&G's Global Real Estate Dividend Index fund is the overall most popular). The M&G fund does not appear in any DFM portfolio on our database.

Though as far as DFMs go, real estate and infrastructure allocations have not increased much this year - indeed they have gone down very marginally to 5.1 per cent.

As we have discussed before, allocations to alternatives have increased but thus far the increase has mainly been among diversifiers such as absolute return, hedge funds or multi-asset.

Scorn in the USA

Our latest peek at the Asset Allocator database reveals the recent sharp falls in US equity markets haven't sent DFMs scurrying to pick up bargains.

The average exposure to US equity funds was basically static at the end of May, as compared with the end of March, at a little above 15 per cent.

Wise funds continued its policy of having little in the largest equity market on earth, preferring instead to seek exposure through global funds. Meanwhile Abrdn has the chunkiest exposure of those we cover, at more than 26 per cent. 

A different picture is painted by Morningstar data which shows inflows of £540m into large-cap US equity funds in May.

While the bulk of this went to passive funds, one active fund attracted a bit of cash.

That was JPMorgan US Select. A fund just over £1bn in size which had a net inflow of £134m in May.

Performance has been quite strong over the past year: it has lost just under half a percentage point, compared with more than 3 per cent for the average fund in the IA North America sector in the same time period.

Three of the fund's top four holdings are Faang stocks - demonstrating perhaps that a scorched earth policy towards tech isn’t needed.

The fund is not held by any of the allocators on our database.

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