Passive funds dominate the recovery in fund sales
10th May 2023 10:46
by Kyle Caldwell from interactive investor
Investors are showing signs of becoming more optimistic, but it is passive strategies that are cleaning up in terms of new money entering funds.
Investor sentiment is picking up, with the latest Pridham Report showing the amount invested into funds in the first quarter of this year was up on the previous two quarters.
The report, which has monitored fund sales and asset trends among UK investors for more than 20 years, noted that stock markets starting the year optimistically helped to boost investor confidence. However, it says this confidence did take knock a towards the end of the three-month period amid fears of a systemic banking crisis unfolding following the collapses of a couple of US banks and European lender Credit Suisse.
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Nonetheless, the improved appetite for collective investments chimes with data from Investment Association, which showed that UK investors put £2 billion into funds in March, the highest amount since December 2021.
Passive strategies cleaning up
In common with what we’ve been seeing on the interactive investor platform passive funds – index funds or exchange-traded funds (ETFs) – have been the big winners from higher fund sales. The Pridham Report shows that BlackRock was the best-selling fund firm for gross sales, while HSBC took top spot for net sales.
Net sales are assets remaining after investor withdrawals, while gross sales take into account only new money invested.
Among interactive investor customers the popularity of passive is shown through eight of the 10 most-bought funds in April being index funds. Vanguard dominates, accounting for six funds, with Vanguard LifeStrategy 80% Equity and Vanguard LifeStrategy 100% Equity, second and third in the rankings.
The passive giant, however, does not appear in the Pridham Report due to not providing its figures.
The other two passive funds in our top 10 are HSBC FTSE All-World Index and Fidelity Index World.
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On the whole, passive investors are favouring plain vanilla exposure to developed markets, which is a trend that also extends to ETFs. Four of the top five best-selling ETFs in April were Vanguard S&P 500 UCITS ETF (distributing), Vanguard FTSE All-World ETF, iShares Core MSCI World ETF and iShares Core FTSE 100 ETF. The outlier is iShares Physical Gold ETC, which has seen an uptick in popularity due to the gold price returning to form in recent months.
There are a number of factors at play behind passive strategies dominating our top 10 most-bought fund league table. One is that some investors are throwing the towel in on trying to find an active fund that could deliver better returns.
Another driver is that investors are unsure where to put their money at the moment, given there’s no shortage of headwinds. As a result, the broad exposure passive funds offer is being favoured, rather than investors targeting more focused active fund exposure.
The active funds bucking the trend
In terms of active funds, the Pridham Report notes the fund firm with the highest gross sales was Royal London Asset Management. In particular, its bond funds proved popular, as well as Royal London UK Equity Income.
The report also highlighted that M&G benefitted from “bumper sales” into its bond and equity funds, with M&G Japan fund the bestseller.
In addition, BNY Mellon saw strong demand for its BNY Mellon Global Income and BNY Mellon Multi-Asset Balanced funds.
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Among the top 10 most-popular funds with interactive investor customers in April, the only two active funds featuring were Fundsmith Equity and Royal London Short Term Money Market.
The report concludes by pointing out that with ongoing recessionary risks and ‘stubborn’ inflation looming over global markets, the outlook for fund sales during the rest of the year remains difficult to predict.
Anna Pridham, Co-Editor of The Pridham Report, says: “While some savers may prefer to leave their cash on deposit due to higher interest rates on offer, fund managers with the right products will continue to attract flows from those investors that are looking towards the longer term.”
Top 10 fund firms by gross retail sales in first quarter of 2023
| Ranking | Fund firm | (£ billion) |
|---|---|---|
| 1 | BlackRock | £7,428.00 |
| 2 | Legal & General | £4,526.00 |
| 3 | Fidelity | £3,737.00 |
| 4 | HSBC | £3,360 |
| 5 | Royal London | £2,620 |
| 6 | M&G | £1,857 |
| 7 | Schroders | £1,732 |
| 8 | JPMorgan | £1,485 |
| 9 | Jupiter | £1,457 |
| 10 | BNY Mellon | £1,404 |
Top 10 fund firms by net retail sales in first quarter of 2023
| Ranking | Fund firm | (£ million) |
|---|---|---|
| 1 | HSBC | £1,247 |
| 2 | BlackRock | £984 |
| 3 | Legal & General | £494 |
| 4 | M&G | £439 |
| 5 | Royal London | £275 |
| 6 | BNY Mellon | £267 |
| 7 | Fidelity | £165 |
| 8 | Alliance Bernstein | £162 |
| 9 | Rathbones | £157 |
| 10 | Man GLG | £107 |
Source: The Pridham Report
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