Groups Remain 'optimistic' On Fund Sales Despite £41bn Drop In Net Flows In 2018

The trade body attributed the huge drop to a "perfect storm of uncertainty" as Brexit, US/China trade tensions, the declining Turkish lira and the Italian budget crisis weighed on investor confidence.

This was exacerbated by the unexpectedly high net sales figures for 2017, which totalled £48.5bn.

The fourth quarter of 2018 in particular saw "significant" monthly outflows, with the most recent monthly statistics from the IA showing outflows of £2.1bn in November.

However, Adam Gent, head of retail/wholesale Northern Europe at Allianz Global Investors, said the firm had bucked the trend, attracting net flows in the final quarter as investors reviewed their asset allocation.

"2018 represented a challenging market backdrop that was particularly tough in Q4 during the heightened market volatility,"

Gent said.

"Despite this, we actually saw net sales increase during Q4 as clients adopted a more cautious stance. This was demonstrated by Mike Riddell's £1.8bn Gilt Yield fund seeing inflows, together with clients using market weakness as a chance to allocate into distressed areas of the equity market.

"As such we also saw inflows into our Chinese A-share fund via our Luxembourg range."

He added: "We have got off to a good start in 2019 but remain cautiously optimistic on prospects for the year as we continue to improve our product offering to the marketplace."

UK equity slump

UK equity, which saw outflows every month in 2018, was the worst-selling asset class over the year, with net retail outflows of £4.9bn.

However, Jeremy Leadsom, head of UK wholesale at Aviva Investors, is bullish on the outlook for UK equities, suggesting now is the time for advisers to review their underweight positions in the

asset class. 

"Most advisers are underweight UK equities, but with markets believing they can look through peak global interest rates, there could be a good opportunity if concrete signs that a hard Brexit can be avoided start to emerge," he said.

"We believe the potential for UK markets to rise should outweigh the likely appreciation of sterling in those circumstances. As always investors need to be selective."

Laith Khalaf, senior analyst at Hargreaves Lansdown, echoed the view that the unpopularity of UK equity funds is throwing up opportunities.  

"UK equities continue to be at the eye of the storm, witnessing large, consistent outflows as investors react to Brexit uncertainty by withdrawing their money," he said.

"Bits of the UK stockmarket are extremely unfashionable right now, and that has created value opportunities for adventurous investors who are willing to look through Brexit volatility."

European equity funds also struggled in 2018, with monthly outflows from May onwards and net retail outflows of £1.3bn over

the year.

Lee Matthews, UK sales director at AllianceBernstein, said despite these wider outflows the firm had taken market share within European equities, as well as US equities. 

"We bucked the outflow story in European equity as investors moved away from growth and towards value, while benchmark-plus managers are becoming challenged as clients demand active managers earn their fee through high conviction, high active share portfolios," Matthews said.

"[In 2019] we expect to increase our market share in European and US equities and grow our fixed income business through defensive funds while being tactical in areas like mortgages and financial credit."