The Calastone Fund Flow index figures for the full year 2019 suggest passively managed equity funds bettered actively managed equity funds, in what was otherwise a torrid year for attracting money to the asset class.
The fund transaction network provider said its data pointed to the UK suffering its first full year of equity fund net outflows until a dramatic turnaround in December as investors responded to the outcome of the general election. Still, overall equity inflows were the weakest in three years, at 19p for every £100 under management. And active equity funds had their worst year on record, while passive funds had their best year on record.
In contrast, bond funds attracted inflows of £2.6/£100, and mixed assets funds £6/£100.
Property had a dire year, with net outflows of £-6.48/£100 under management.
In nominal terms, equity funds experienced inflows of £1.282bn, bond funds £4.947bn, mixed assets funds £10.350bn, while outflows from property funds hit £2.191bn through the year.
However, the aggregate numbers hide some stark differences in performance between active and passive funds.
Passive equity funds attracted £6.7bn of new capital. Active equity funds saw investors withdraw £5.4bn through the year. Only one category, global funds, saw larger inflows to active than passive funds. On a ratio basis passive equity funds attracted £3/£100 of inflows, against £-1.2/£100 for active equity funds.
Overall, flows in 2019 were down on 2018, Calastone added.
Edward Glyn, head of Global Markets at Calastone, said: "As recently as October we thought it unlikely that equity funds would avoid their first annual net outflows on record for our index, with investors simply refusing to respond to rapid increases in stock markets. But electoral and trade news prompted a truly dramatic turnaround in December, proving how important politics, whether geo- or domestic, are to investor decision-making."
"Mixed asset funds remained the most popular category, but even they saw lower inflows during a year of fragile confidence, evidenced by the popularity of bond funds. Mixed asset funds are more firmly anchored in regular savings plans than other funds and they benefit from a less obvious association with any particular asset type or regional bias (eg, UK, emerging markets, etc) - both these factors make them less obvious targets for investor trading in response to market developments."
"Alongside the ebb and flow of markets, the deeper currents in the asset management industry played out in 2019 too. Property funds are suffering from the tension between their illiquid asset bases and their open-ended structure, while the rise of index funds means that two thirds of equity flows in the last four years have been into passive funds, despite them only representing one third of equity assets under management, and in 2019 there was outright switching from active to passive. Elsewhere, absolute return and alternatives are examples of how the industry can be prone to faddy gold rushes - they are now firmly out of favour. They highlight that investors should be wary of chasing the latest new trend."
The Fund Flow data is based on over a million buy and sell orders handled by Calastone each month since January 2015. More than two thirds of UK fund flows by value pass through the network each month, and all trades are included in the index calculations.