Trapped Woodford investors fail to stymie UK equity outflows

Brexit outflows return after brief respite in May

Photo by dylan nolte on Unsplash

The £3.5bn worth of client assets trapped in Woodford Equity Income failed to stem mass outflows from UK equities in the month of June, which put an end to a one-month respite after two years of Brexit-induced outflows.

Investors pulled £744m from UK equity funds in June – the largest experienced by the asset class this year.

However, in June, the UK All Companies and UK Equity Income sectors were among the least loved individual sectors with investors yanking £309m and £287m from funds respectively.

This was a sharp reversal from May when investors poured £533m into UK equity funds, which was the first influx the asset class had seen in two years.

Around £2.7bn has been withdrawn from UK equity funds in the last 12 months.

Woodford contagion

Tilney managing director Jason Hollands theorised last month the suspension of Woodford Equity Income fund might be supportive to the June UK equity figures, due to the fact that £3.5bn of investor money remains trapped in the fund.

However, weighing in on the latest Investment Association figures, Hollands said negative buzz around Neil Woodford’s equity income fund may have contributed to investor pessimism around UK equity funds generally. Heavy redemptions from Woodford’s sibling fund Income Focus added to the outflows too, he said.

Woodford’s junior equity fund lost one third of its assets last month as it racked up £150m of outflows, which was in line with redemptions seen by much bigger players like the £8.1bn SLI Global Absolute Return Strategies and the Mark Barnett-run £6.8bn Invesco High Income funds.

Brexit outflows return

AJ Bell personal finance analyst Laura Suter said the uncertainty over who would replace Theresa May as the next prime minister and the increased prospect of a no deal Brexit was enough to ensure the positive flows into UK equities in May was “a mere blip”.

Willis Owen head of personal investing Adrian Lowcock agreed international investors had no strong reason to own the UK last month. “Whilst Brexit itself was no longer dominating headlines the risks and uncertainty have not gone away.”

Hollands pointed out European equity funds have haemorrhaged even more cash over that time (£4bn) and have posted net outflows for the last 14 months in a row.

Bonds bounce back

Meanwhile bond funds continued to enjoy what IA chief executive Chris Cummings said was a “dramatic bounce back” from the fourth quarter sell-off last year.

Fixed income was the highest selling sector for the fourth month in a row, attracting £2.4bn of net client money. In the second quarter alone investors have poured £4.8bn into bond funds over three times the amount of the next bestselling sector – mixed asset funds.

Nearly half of the June net retail sales into fixed income (£1.1bn) flowed into Sterling Strategic Bond, making it the best selling sector during the month, followed by Sterling Corporate Bond which attracted £453m.

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