InvestmentsJan 3 2019

Holding firm in tricky year for risk assets

  • Gain an understanding of fund flow activity during 2018
  • Learn which companies and funds have proved popular
  • Gain an insight into future trends
  • Gain an understanding of fund flow activity during 2018
  • Learn which companies and funds have proved popular
  • Gain an insight into future trends
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Holding firm in tricky year for risk assets

While 2017 was characterised by a record run for fund flows – fuelled by an influx of money into pensions wrappers as savers cashed in their defined benefit pensions – the past year has been decidedly different. 

Net retail fund sales for 2017 reached a record £48bn. But in 2018, the total as of October stood at just under £12bn, putting the industry on track for its second worst year in the past decade. What’s more, that figure masks the fact that flows turned negative in October – to the tune of £1.6bn – as market volatility returned.

As a result our annual look at how money moved around the funds industry has a different feel to it this time around. We’ve again used Morningstar estimates to rank groups by the amount of money their portfolios have garnered, or lost, in 2018.

Why is all this important? As we noted in last year’s survey, fund flows aren’t the principle metric by which the quality of a business should be judged. But they do have a part to play in due diligence. Working out whether a company’s strains or successes are down to one or two funds going awry, or reflective of a wider problem, is a worthwhile task.

On a portfolio level, flows can indicate what type of asset-allocation decisions are being made, suggest a fund may be growing too big too quickly, or even point to a contrarian opportunity.

Making the most of it

Unsurprisingly, given the dynamics outlined above, the biggest winners have taken in less than 2017’s leading lights, while the laggards have had a tougher time of it than the previous year’s strugglers.

Table 1 shows those fund groups that have managed to prosper during a tricky year for risk assets. The FTSE All-Share index may be down 7.5 per cent for 2018 at the time of writing, and the FTSE World flat in sterling terms, but a select group of equity-focused companies have done well. Chief among them is Baillie Gifford, which has captured the gains of the US technology sector via its American offering. 

Some of those rewards have been given back more recently: a development which emphasises the challenges that lay ahead.

Aside from the Edinburgh-based firm, many of the table’s constituents can be divided into two distinct groups. First come the specialist fund houses that are relatively small in size (in global terms at least), and indeed are valued for this reason. 

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