Vanguard raked in record net inflows in its UK-domiciled fund range during March as the rest of the UK industry suffered its worst ever month amid coronavirus volatility.
The Vanguard FTSE UK All Share Index alone, which was the most popular fund in March, brought in £704m for the passives giant, according to Morningstar Direct data. Vanguard US Equity Index and Vanguard Developed World ex UK Equity Index brought in an extra £400m.
The trio of index funds represented the bulk of the total £1.2bn the fund house raked in over the period.
In contrast, investors pulled £8.7bn from UK-domiciled funds as a whole with fixed income representing £5.5bn of that. “On a relative basis, March’s net outflow was only comparable to October 2008,” the report said.
Vanguard and Blackrock ride high on passives
The dominance of the single strategy passive funds in Vanguard flows figures differs from the usual trend seen at the asset manager whereby the multi-asset Lifestrategy funds buoy flows, said Morningstar associate analyst Bhavik Parekh.
The report described the market backdrop as one where investors were “piling into broad market passive funds”. In equities, it noted the trend of a rotation out of active equity funds and into passive counterparts accelerated.
Blackrock followed Vanguard as the fund house with the second-highest March net inflows, albeit with just £80m. This was due to redemptions from its fixed income products with iShares UK Gilts All Stocks Index losing £725m to redemptions, the worst outflows of any fund over the month. Vanguard only has two UK-domiciled fixed income products.
In contrast, the iShares UK Equity Index led product sales by bringing in £572m net.
7IM senior portfolio manager Peter Sleep thought Blackrock would “resume its position at the top of the tree” once the coronavirus volatility settled down.
“I think what you are seeing is a product of their relative strengths and what happened in March. iShares is huge in bond ETFs, whereas Vanguard is a dot. On equities they are more evenly matched,” Sleep said, noting that there may have been a much smaller difference between the passive rivals if ETF data had been included in the flows figures.
Active strategies at Blackrock faced net outflows of £124m.
The Allianz Strategic Bond fund, managed by Mike Riddell, was the only active product, excluding money market funds, to feature in the top-five best selling funds over the period. It took in £330m.
Fundsmith worst active fund for outflows
Fundsmith Equity followed the iShares gilts tracker as the fund with the worst net flows over the month losing £461m. It has now faced net outflows of £2bn over the last year although its assets remain high at £16.7bn.
The March outflows represented just 2.5% of assets, Morningstar said.
Aviva Investors Multi-Strategy Target Return faced the next highest net outflows with £387m net withdrawn.
