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Asset Allocator

from Asset Allocator

January blues

It wasn’t just Santa's elves who had a busy December.

Asset Allocator's little helpers were also busily crunching some numbers as they digested their turkey.

Specifically, we had a look at the outlooks held by some of the largest multi-asset houses out there, to see how their views may have been altered by the bruising events of 2022.

In the first quarter of 2022, which marked the period when the long awaited "rotation" into value stocks began, none of the fund houses were negative on the UK, with 25 per cent positive and the remainder neutral. 

But what a difference a year makes.

Over the course of 2022 the fund houses became increasingly negative towards the UK and by the start of the third quarter of the year the number of buyers positive on the UK market had fallen to 12 per cent, with 37.5 per cent negative. 

Interestingly, since then sentiment has actually improved a bit towards the UK with 17 per cent positive and 33 per cent negative (the rest are neutral).

But allocators do not look to be rushing towards UK equities for the time being.

The latest flows data from Morningstar indicates this smidge of renewed optimism has yet to percolate to the wider market.

The data, which covered the month of November, showed a further £1bn was pulled from UK large cap funds, bringing the total for the first 11 months of the year to £11.3bn. 

The allocators we cover came into 2022 very positive on US equities, with zero negative and only 20 per cent neutral. 

But the toll of tighter monetary policy weighs heavy on the head of the standout market of the past decade, with the allocators now evenly split, with a third each being positive, negative, and neutral on the asset class. 

Morningstar data for November indicates US equity funds are back in favour with investors, November's £1.6bn net inflow was sufficient to mean the asset class was net positive in terms of flows for the first 11 months of 2022.

One contributor to those net flows in November was a newly launched actively managed US equity fund from Hargreaves Lansdown which brought in more than £600mn. 

As for European equity funds, they still can't catch a break.

They are the asset class towards which allocators are most negative as they enter 2023 (83 per cent of allocators regard them negatively with none viewing them positively).

Presumably this is on the basis the market is waking up to the implication for a single currency Union of tighter monetary policy being ideal for some of the economies and a disaster for others. 

That negativity contrasts with the roughly one third of allocators who were positive on the asset class at the start of 2022.

We will look further at the data contained in this database in the next Asset Allocator. 

The Morningstar data shows both equities and bonds had their first month of net inflows at the same time since December 2021. 

Among the firms to benefit from this bout of renewed optimism was BlackRock, which attracted a net inflow of £1.5bn, its best of the year. 

In contrast, Columbia Threadneedle had an outflow of £400mn in the month, perhaps a function of investors digesting the exit of long-standing UK Equity Income fund manager Richard Colwell.

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