Investor flight from UK income funds gathers pace

Investors’ flight from UK equity income funds has gathered pace, as withdrawals broke records for the second month in a row in July, according to estimates from fund settlement service Calastone.

Redemptions from UK equity income funds hit £705m in July, up from £671m in June, as heavy dividend cuts across the UK stock market in response to the coronavirus pandemic take their toll.

Dividends from UK-listed companies crashed 57% in the second quarter this year and estimates from the UK Dividend Monitor report point to a fall of up to 42% in 2020.

The £1.6bn JOHCM UK Equity Income fund was the worst hit, according to Morningstar data. Investors pulled £138m from the fund in July after another difficult month for managers Clive Beagles and James Lowen, whose portfolio slumped 6.2%, more than twice the FTSE All-Share’s 2.7% loss.

Since the turn of the year, the fund is down 32%, and has halved in size as investors have pulled money. The average fund in the Investment Association’s UK Equity Income sector is down 21% over the same period.

‘It was another difficult and disappointing month for the fund,’ the managers said in their most recent update to investors. ‘The main driver of the poor relative performance has been the ongoing underperformance of “value” stocks and the outperformance of “growth” and “momentum” factors.’

The poor showing from UK equity income funds contributed to headline £377m net ouflows from all UK equity funds in July, according to Calastone.

Head of global markets Edward Glyn said the high number of ‘value’ stocks on the UK stock market explained the heavy withdrawals.

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‘With so many “value” stocks, many of which have cut dividends hard, it’s no wonder the UK stock market has underperformed in the global market rally since March,’ he said.

‘This explains the outflows from UK-focused funds and helps explain the increased surge in outflows from income funds.’

Withdrawals from equity funds overall stood at £240m, down from £1.2bn in June, softened by inflows into bond and mixed asset funds.

Among equity funds, global mandates topped the sales charts, scooping £605m of investor money in July. Environmental, social and governance (ESG) funds accounted for more than half of this, as their popularity continues to grow.

Total inflows into ESG funds hit £367m in July, up from £336m in June. Over the last four moths inflows have reached £1.2bn, more than they received in the previous five years combined.

Half-year results from insurer Royal London this morning underlined the popularity of ESG funds, reporting inflows of £1.3bn into its Sustainable funds range. Royal London Asset Management’s net sales topped the charts in the second quarter this year, pipping Baillie Gifford with sales of £1.3bn versus £1.1bn, according to the Pridham Report.

Investors have poured £473m into Citywire AAA-rated Mike Fox’s Royal London Sustainable Leaders fund since the turn of the year amid strong performance.



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