Baillie Gifford and Vanguard surge past Blackrock for UK fund flows

Baillie Gifford and Vanguard have continued to dominate net inflows over the first six months of the year, outpacing passives giant Blackrock, which saw a spike in demand for its ESG trackers but billions of pounds exiting its UK and US index funds.

Morningstar estimates Baillie Gifford lapped up £3bn in net client cash in H1 2021. The Edinburgh manager saw strong flows at the start of the year, despite the Covid vaccine-led rotation into value stocks. It recorded its strongest month ever in February when investors pumped £1.5bn into its funds.

However, its performance in the second quarter was not nearly as strong as the year before.

It just about edged out passive giant Vanguard which pulled in £2.8bn over the first six months of the year.

Morningstar analyst Bhavik Parekh notes the $7trn manager’s popularity has been enduring, thanks partly to its Lifestrategy range which “perfectly captures the zeitgeist of low-cost investing and multi-asset funds”.

Independent wealth expert Adrian Lowcock says: “Baillie Gifford has been riding high as the focus on long-term growth and the group’s impressive stock picking ability has driven performance and naturally attracted investors.”

Meanwhile “Vanguard has been relentlessly building up its brand and proposition in the UK,” he adds. “Passive solutions have been popular over the past 10 years, making them popular.”

See also: Active advocate Baillie Gifford trounces Vanguard and Blackrock for UK fund flows

Baillie Gifford and Vanguard eclipse Blackrock

Both Baillie Gifford and Vanguard did noticeably better than Blackrock which managed to rake in £959m over the period. Even Schroders had a stronger showing than Blackrock in the end, taking in £1.9bn in H1.

That said, on a 12-month basis the $9trn manager is still leaps and bounds ahead of other UK fund providers for net flows, amassing £21.8bn.

Seven Investment Management senior portfolio manager Peter Sleep says Blackrock is stronger in fixed income ETFs than Vanguard, so it could be that equity flows in H1 were stronger than fixed income, thereby helping Vanguard.  

“Still Blackrock has about 600 ETFs compared to Vanguard’s 40-odd, so they will be disappointed,” Sleep says.  

Source: Morningstar

Data from Morningstar prepared for Portfolio Adviser shows several Blackrock funds were among the most popular open-ended, UK-domiciled funds over the first half of the year. All four had an ESG-bent, with the ACS Climate Transition World Equity fund attracting the highest flows of the lot of £1.7bn.

However, Blackrock funds suffered some of the biggest redemptions, representing six out of 10 of the bottom funds for net flows. Among its least popular funds were the Blackrock ACS World ex UK Equity Tracker (-£1.5bn), iShares UK Equity Index (-£1.3bn) and iShares North American Equity Index (-£766m).  

Only three actively managed funds featured in the top 10 funds for highest net inflows. The first was the Baillie Gifford Managed fund, run by Iain McCombie and Steven Hay, which brought in £1.2bn in client cash.  

The other two were the Schroders Personal Wealth Multi-Manager Global Investment Grade Bond and Multi-Manager Global Sovereign Bond funds, which took in £3bn and £926m respectively. However, it is unclear whether this represents new client cash or money moved around internally.  

Invesco and M&G feel the heat 

However, the asset managers that endured the worst redemptions overall were Invesco and M&G. 

Invesco saw the most outflows of any asset manager in 2020 in the UK, says Parekh, and “in 2021 the story is little different, with the fund group seeing almost £5bn in net outflows”.  

Invesco declined to comment.  

Parekh points out roughly three quarters of Invesco’s redemptions came from Invesco Global Targeted Returns. Investors pulled £3.7bn from the fund over the first half of the year, more than any other UK domiciled fund. 

Invesco Global Targeted Returns is sitting on losses across all major time frames, losing 3.3% versus the IA Targeted Absolute Return sector’s gains of 6.3% over three years. At the end of June assets in the fund were £2.5bn, a mere shadow of its peak size of £13bn in 2018, mirroring the descent of the once giant ASI Global Absolute Return Strategies (Gars). 

But Ben Yearsley, director at Fairview Investing, notes high-profile departures, like Mark Barnett and Paul Chesson, and the retirements of bond veterans Paul Causer and Paul Read have only added to the “continued drip-drip of negativity surrounding Invesco”. 

Lowcock adds that flows into the asset manager have not been helped by its major restructuring efforts, its preferred value style being out of favour for so long and its ties to Neil Woodford.  

Investors were also not kind to M&G over the first half of the year, which racked up £2.2bn worth of redemptions.  

Like Invesco one culprit, the M&G Property Portfolio, accounted for £966m or 43% of the total money exiting. M&G said redemptions had been in line with expectations. 

See also: Property fund redemptions hold steady as another £186m heads out the door

However Parekh says its more “mature funds” like Richard Woolnough’s M&G Corporate Bond fund have also caused “steady outflows” for “many months, even years”. 

Overall, Lowcock says M&G’s equity desk has lagged its more “solid” fixed income team, “with few star or high-profile managers”.  

Source: Morningstar