The fund sector both retail investors and professionals are selling

Fund investors piled back into the market in April, following record withdrawals a month earlier, but one fund sector remains deeply unloved.

Over £4 billion was invested in funds during April, which may prove to be the start of a resurgence following record investor withdrawals the previous month. In March, £10 billion was pulled out of funds in response to the coronavirus crisis.

Active funds received the lion’s share of inflows, attracting £2.7 billion, compared with £1.4 billion going to tracker funds.

Equity funds returned to inflows in April, with £2.4 billion invested. The other main asset classes (bonds and property), also saw more money invested than withdrawn.

But on a sector level, one equity region in particular remains deeply unloved – Europe. Funds that invest across the continent saw £206 million withdrawn in April across the three Investment Association (IA) fund sectors: Europe excluding UK, Europe including UK and European Smaller Companies. Over the past year, the biggest sector, European excluding UK, has posted outflows every month bar one – December 2019.

Professional investors have also been reducing exposure, including John Chatfeild-Roberts, head of strategy for the Jupiter Independent Funds team. Chatfeild-Roberts boosted exposure to gold and removed European exposure across the multi-manager funds he oversees during the heavy stock market sell-off in late February and most of March.

This was part of a broader move to “mitigate losses as far as possible”, he said. In a note to investors he added: “The first move was to sell Schroder European Alpha Income, which we felt was too heavily exposed to the troubled oil sector.”

Witan, an investment trust that outsources stock-picking to third-party fund managers, also recently announced it had terminated the two Europe ex-UK mandates, which were run by Richard Pease of Crux Asset Management and Stuart Mitchell of SW Mitchell Capital. It said the decision to drop the two European fund managers was made “in favour of making greater use of unconstrained global managers able to choose between European stocks and those in other regions.”

Retail investors are currently adopting the same approach. The IA stats show global was the best-selling sector overall in April, with £1.2 billion invested. In 10 of the past 12 months more money has been invested than withdrawn.

A similar trend is also apparent in our monthly top 10 most bought funds table, which uses customer data from interactive investor, Money Observer’s parent company. In May, five of the top 10 sit in the IA global sector.

Ben Yearsley, director of Shore Financial Planning, notes Europe is being avoided by investors “because it’s seen as stodgy and old-fashioned with lots of moribund sectors - banking for example.”

He adds: “Europe is not seen as high growth or at the cutting edge of technology, which of course has been driving markets globally. Add in the problems in Europe and Italy, especially with paying for the stimulus measures to do with coronavirus, and it is no wonder investors have shunned Europe. This is despite the fact there are some great managers and companies in Europe.”