European equity funds suffered higher outflows in May than the last two months during the height of the coronavirus crisis combined, overtaking absolute return funds as the most unloved asset class, according to stats from the Investment Association.
UK savers withdrew £451m from the IA Europe ex-UK sector, which was the worst selling sector last month. Collectively £500m was pulled from European equity funds.
Outflows from the IA Europe ex-UK sector were the highest in nine months and nearly three times as high as the £164m and £160m that exited funds in March and April during the height of the coronavirus crisis.
European equity funds proved even more unpopular than absolute return funds, which saw the highest outflows in April. The IA Targeted Absolute Return sector saw outflows slow in May to £144.4m from £419m the previous month but it was still the third worst-selling sector behind IA UK Gilts where investors pulled £152.6m.
Global funds top IA sales chart for second month running
Willis Owen head of personal investing Adrian Lowcock said the pessimism around European equity funds is unsurprising.
He notes the initial response to Covid across Europe was “very mixed with each country doing its own thing” and the EU was slower to respond with support packages and stimulus measures compared with the UK and the US.
“Exiting lockdown strategies have also been very mixed and slower than many expect,” he added, and “economic data for May was patchy and unreliable, almost meaningless”.
Investors were bullish on equity markets generally, plunging £873m into the IA Global sector, which topped the IA sales chart for a second month in a row, and a further £729m into IA North America funds.
UK equity funds also saw positive flows of £422m though this was down substantially from the £1bn they attracted in April.
‘Steady as she goes’ for UK fund flows
IA chief executive Chris Cummings (pictured) noted it was “steady as she goes for the fund market in May” as retail sales hit £4.7bn, following on from April’s inflows of £4.2bn. Inflows into UK funds over the last two months have now offset the £8.7bn that exited in March during the Covid-19 sell-off.
For the second month in a row active funds attracted double the level of net inflows of tracker funds, raking in £3.5bn versus the latter’s £1.3bn.
Responsible investment funds were also able to sustain their momentum from the previous month pulling in close to £1bn for the second consecutive month.
Bond funds were also boosted in May, with net inflows doubling from £903m to £1.9bn month-on-month. The IA Sterling Corporate Bond and Global Bonds sector saw the highest inflows, taking in £675m and £579m respectively.
