Overseas holdings in UK-domiciled funds halved in lead up to Brexit

Oeics and unit trusts shed over £40bn worth of foreign assets in 2018

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Morningstar and Investment Association data reveals UK-domiciled funds shed foreign investor money in the lead up to the initial Brexit deadline, which has now been postponed to later in 2019.

In flows data for March 2019, when the UK was scheduled to leave the European Union under Article 50, investors pulled £5bn from Oeics and unit trusts taking the total amount pulled over the last year to £30bn, according to Morningstar. The due date for the UK to leave the EU has now been extended twice, first to 12 April and now to its current deadline of 31 October.

Investment Association data shows overseas holdings in UK-domiciled funds nearly halved over 2018 from £86.6bn to £45.5bn. Over the same period, UK investor holdings in Oeics and unit trusts fell marginally from £1,073bn to £1,000bn. The figures include investment performance and sales.

The Investment Association does not hold data on where overseas investors shifted money.

Morningstar said Brexit made analysing fund flows increasingly difficult as it was unclear whether investors were pulling out of a particular asset class or were transferring money held in UK-domiciled funds to European-domiciled equivalents in the likes of Ireland and Luxembourg.

Its research note, published by associate analyst for manager research Bhavik Parekh, said: “In the months leading up to the deadline, investors and fund families became increasingly worried over the impact of a unfavourable deal and its negative implications.

“Fund families began to move assets into vehicles that are domiciled in Europe, primarily Luxembourg. As a result, outflows from UK-domiciled funds show both movement of assets into Lux-domiciled funds and investor withdrawals; conversely, Lux funds have seen investor interest as well as a transfer of assets from UK-domiciled funds.

“Whilst it is unclear how much Brexit has affected flows, it has created short-term noise in the data.”

M&G Investments and Columbia Threadneedle are among the fund giants who have announced plans to shift Oeic money into Luxembourg-domiciled Sicavs. In January, Portfolio Adviser revealed Crux Asset Management was stepping up its contingency planning for European investors in Richard Pease’s fund due to uncertainty surrounding Brexit.

The Investment Association said a change in data collection method means its figures show total AUM held by foreign investors rose in January and February this year, but this does not reflect movement into UK-domiciled funds.

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