Inflows into active equity funds hit £1.3bn in August as investors continued to ride the post-vaccine wave, Calastone fund flow data has shown.
Global funds saw the largest net inflows during the month at £1.1bn, with much of this being targeted at ESG offerings.
Investors have been increasingly opting for active equity funds over passive equivalents since the three main Covid-19 vaccines – Pfizer, Astrazeneca and Moderna – were approved in November 2020.
Since then, £17.2bn has been pumped into equity holdings – more than a third of the net inflows into equity funds since 2015.
Index-tracking funds fared significantly worse and have recorded lower net inflows, and in some months, outflows, for seven months in a row. In August, £4m was added to index trackers.
“Every couple of years, we have seen a period where investors take a greater interest in active funds than they do in their passive counterparts,” said Edward Glyn, head of global markets at Calastone. “The current switch of focus is particularly extreme, with August the third-worst month for passive funds in five years.
“Turnover levels for active funds are far greater than for their index-tracking counterparts relative to net inflows, however, and turnover is more volatile too. This reflects a greater trading mentality among investors when it comes to their active holdings, while passive funds typically sit more quietly in monthly savings plans. The unusual times we live in seem especially suited to greater engagement by investors with their fund holdings.”
Active funds focused on ESG have been a significant driver behind the increasing popularity of active equity funds, with these accounting for more than three-fifths of active inflows since November 2020.
However, investors have turned away from mixed asset funds which saw £138m in new capital in August compared with a long-run monthly average of £1bn.
Property fund outflows fell to their lowest point since February 2020, not including the month when all property funds were suspended from trading.
“Certainly, the rise of ESG funds has pulled investor focus from passives too, but we do not expect this to herald a long-term loss of faith in index trackers,” said Glyn. “Low costs and solid returns remain key attractions that will gradually shift market share of total assets under management in favour of trackers.”
He added: “Marketing focus by fund management houses should not be underestimated either. It exerts a clear influence on investor decision making, often via the advised route. The loss of interest first in absolute return funds, and more recently in mixed-asset funds reflects a switch of marketing spend to the ESG segment. As a trend establishes and more investors respond, firms develop more products and devote more spend. The process can drive inflows for a prolonged period.”
