UK-domiciled Funds Suffer £5bn Outflows In March As Brexit Fears Weigh On Sentiment

In its first UK Fund Flows data and commentary, Morningstar Direct attributed the persistent outflows to the impact of Brexit, which is pushing investors from UK-domiciled funds to those registered in Luxembourg and Ireland. 

At the same time, the approach of the original 31 March Brexit deadline pushed buyers into money market funds in favour of other asset classes.

"Brexit has made analysing fund flows from UK-domiciled funds difficult," said Bhavik Parekh, associate analyst, manager research.

"In the months leading up to the deadline, investors and fund families became increasingly worried over the impact of an unfavourable deal and its negative implications."

UK investors move £62bn into Luxembourg and Dublin funds on Brexit fears

The UK and European equity markets have been particularly out of favour with fund buyers, as the figures show some £1.3bn of redemptions were from these two areas.

Even the UK equity income Morningstar category has suffered, despite being a long-standing favourite with investors previously.

An example of the "Brexit effect" can be seen in the £944m of outflows from the Artemis US Extended Alpha fund - almost the exact same amount went into the Luxembourg-domiciled version of the fund.

Absolute return giants - primarily Invesco Global Targeted Returns, Newton Real Return and Standard Life GARS - also saw outflows in March. 

Meanwhile, money was attracted by passive products and those with a focus on environmental, social and governance (ESG) issues.

On an asset class level, Morningstar Direct said fixed income offered the only "ray of light at an otherwise gloomy time for long-term investment funds", with inflows of £337m helping to reverse its significant 2018 outflows.

Parekh commented: "For every major asset class except alternatives, there was a reversal in flows when comparing the first quarter of 2018 with this year's first quarter.

"This year's first quarter saw [gross] outflows of £10bn, whereas better investor sentiment last year led to inflows of £13.5bn in first-quarter 2018. While some of this can likely be attributed to Brexit, it shows a clear mood shift."

Fund groups

Meanwhile, Morningstar has found that the majority of the top 10 fund families by UK-domiciled AUM saw outflows both in March, and in the past 12 months: notably, M&G has lost £12.4bn over the past year, £5.5bn of this from the M&G Optimal Income fund.

Baillie Gifford bucked the trend, attracting inflows across its fund range.

"We have a Positive rating on the Parent Pillar for Baillie Gifford, and we like its clear focus on investor stewardship as well as its long-term investing approach. The stability this offers is welcome to investors given the turbulence that Brexit has brought," said the analyst.

BlackRock also enjoyed inflows in March, buoyed by its global tracker funds, which helped overcome large outflows from its active fund range in the latter part of 2018. 

Royal London has also had a strong year, with £4bn in net new money coming in, primarily into its fixed income, sustainable and ethical funds.