The fund sector investors are heavily selling

October was one of the worst months on record for this fund sector as investors voted with their feet.

Property funds suffered one of their worst months ever in October with investors rushing for the exit as funds reopened after months of suspensions. 

Data from global funds network Calastone for last month revealed that property funds experienced investor withdrawals (outflows) of £336 million, marking their third-worst month on record since the firm started analysing buy and sell orders in January 2015. 

Many open-ended property funds across the sector had been shuttered since March, with several just beginning to reopen in the last couple of months. This has unleashed a wave of redemption demand from investors.

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Elsewhere in the investment universe, European equity funds had a challenging October, both in performance terms and with regard to outflows. While North American, Asian and global funds all attracted new capital, European-focused funds experienced £69 million in outflows. 

Across all types of equity funds, investors redeemed a net £82 million of capital, which represents the first outflow in three months.

ESG funds win big

Meanwhile, ESG funds (those that apply environmental, social, and governance criteria) and index funds were big winners. ESG funds attracted £542 million in inflows compared to £625 million of outflows for non-ESG funds. Index equity funds received £378 million of new capital compared to active funds, which shed £460 million.

Across other asset classes, investor caution over equities was good for bond funds, which had their best month since November 2019, enjoying £716 million of inflows as they benefited from the growth in ESG fixed income investing. ESG bond funds have experienced record inflows over the last five months. In October, these funds absorbed £125 million of new capital, the second-highest total after August. 

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“Investors voted with their feet in October, both as they anticipated the second round of lockdowns being imposed across England and Wales and watched as Brexit brinkmanship from the EU and the UK dramatically increased the risk of a no-deal crash-out when the UK’s departure transition period ends this year,” says Edward Glyn, head of global markets at Calastone.

“The fact that UK-focused funds are suffering so much more than their European counterparts, despite the pandemic inflicting lockdowns equally severe in many parts of the continent, suggests that investors view the double whammy of Covid-19 and Brexit as uniquely damaging for Britain.

‘Significant knock’

“Global markets have been nervy in the last couple of weeks as concerns over the global economy have grown, but investors have not shown the same fear they did in March at the resurgent pandemic. Property funds have suffered a significant knock however, as many of them have just lifted their suspensions on trading, facilitating pent-up demand for redemptions to take place.”

Calastone analyses more than a million buy and sell orders each month, tracking flows into and out of investment funds from financial advisers, platforms and institutions. Calastone says that more than two-thirds of UK fund flows by value pass across its network every month.

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