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DFMs' favourite global income funds look to Europe

The scale of investor angst is revealed by the latest Investment Association data, which shows £4.5bn was pulled from UK domiciled funds in June.

Most sectors had outflows but, perhaps surprisingly, the sector which suffered most sharply was the Global one, with £1.3bn withdrawn.

It may be the case that investors sold off their country-specific holdings in the initial stages of the sell-off and, by June, had nowhere else to go than to get rid of their global holdings. 

That sense of seeking shelter from a storm was encapsulated by the best-selling sector being Volatility Managed, which attracted net new money of £248m, while Global Equity Income funds brought in a net £189m.

As previously mentioned, the Fidelity Global Dividend fund is by some margin the most popular global equity income fund among allocators in our database, being held by nine allocators and being bought by one new DFM in the second quarter of this year.

The £3.1bn fund has a significant overweight to Europe ex-UK compared to its sector, at 36 per cent, and has a sizeable underweight to North America at 32 per cent. 

That Europe exposure is focused around stocks such as Roche and Sanofi, which are often viewed as bond proxies.

That's a similar approach to the one pursued by the Evenlode Global Income fund, which is the second-most popular global equity income mandate among the DFMs we cover, being held in three portfolios. 

The manager, Ben Peters, tends to invest in the same type of dividend "compounders" as the Fidelity fund and he has placed an even bigger bet on Europe with a 43 per cent exposure (the Global Equity Income sector, for comparison, has an average Europe exposure of just 18.5 per cent).

Investors pulled £653m from fixed income funds overall, but there was better news for gilts which had a net inflow of just over £100m. Investors were perhaps deciding the certainty of getting repaid was currently more attractive than trying to fight inflation.

Because there isn’t any material credit risk to owning gilts, investors tend to prefer their exposure to come via passive funds, and Vanguard’s UK Government Bond Index fund is the most popular, held in the portfolios of seven of the DFMs on our database. 

The best-selling equity region was Japan, which had an inflow of £15m. 

Indeed Japan was the only equity region to post inflows of any size (money continues to drain from UK equities like a leaky sieve, with £5.7bn pulled in the first half of 2022).

The positivity towards Japan may be explained by the weakness of the yen, making Japanese exports more competitive while policymakers in Tokyo are determined to keep monetary policy loose and boost economic growth. 

The most popular Japanese equity fund on our database is JPMorgan Japan, which is held in the portfolios of nine of the allocators on our database. 

Unfortunately for those nine DFMs, it has been one of the worst performing funds in the IA Japan sector in 2022 so far, losing 19.9 per cent. It was also one of the worst performers in the entirety of 2021.

Only two funds have performed worse in 2022 so far.

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