Despite being one of the best performing geographic regions in the first half of 2021, the latest research from the Investment Association (IA) shows investors pulled money out of UK funds in May.
According to data from FE, over the year to 1 June, with returns of 19.97%, 12.15% and 11.87%, the IA UK Smaller Companies, IA UK Equity Income and IA UK All Companies sectors were the first, third and fifth best performing sectors, respectively.
But in a sign that investors may be getting nervous about the UK’s ability to continue to outperform, data from the IA showed that, in May, UK funds was the only equity fund region that experienced outflows, which totalled £571m ($788m, €667m).
The majority of these outflows were from the IA UK All Companies and UK Equity Income sectors, which suffered redemptions of £324m and £375m respectively. Investors did keep faith with the country’s more domestic-orientated companies, with the IA UK Smaller Companies sector seeing net inflows of £127m over the period.
“UK Equity Income was the least popular sector in May and has continued to face challenges after a difficult year for many dividend-paying companies hit by coronavirus restrictions,” said Kate Marshall, acting head of investment analysis at Hargreaves Lansdown.
Search for resilience
Meanwhile in a reversal of fortunes, after four months of outflows, investors placed their confidence in Europe, with the IA Europe sector seeing inflows of £101m. Additionally after being the top selling sector for seven months in a row, the IA Global sector lost top spot to IA Mixed Investment 40-85% Shares, which saw inflows of £692m over the period.
“This reminds us that some investors are still looking for an element of resilience to their investments, despite strong market returns over the past year,” said Marshall. “Funds in this sector invest partly in bonds and cash, so they’re not always fully exposed to the volatility that often comes with pure stock market investing.”
Looking at the overall performance figures for the first half of the year, Ben Yearsley, investment consultant at Fairview Investing, noted the top spots in the open-ended universe are dominated by energy funds.
With a return of 37.79%, the Schroder ISF Global Energy Fund topped the rankings, while five out of the top 10 best performing open-ended funds were energy focussed.
“This isn’t really much of a surprise given the near 50% rise in the price of oil this year,” said Yearsley. “UK smaller company funds also performed strongly – both value and growth ones,” he added.
Indeed despite the FTSE rising only 10% over six months, Yearsley noted all the strong performance of the IA UK Smaller Companies, IA UK Equity Income and IA UK All Companies sectors.
“There may be life in active management after all,” he said. “The value trade may have petered out recently but there has been more nuance to markets in 2021 as evidenced by proper value sector energy topping the tables.
“It is easy to get into a mindset that only one style will win and forget there are many interesting companies around throwing off lots of cash. It’s all about balance in portfolios in my view – growth for long term, but don’t forget value can make you money too.”
