Finance

Stock pickers ride vaccine optimism to trounce passives with £1.3bn haul

Active equity funds continued their winning streak in August, gathering around 300 times more in new investor money compared to their cheaper, passive rivals.

Data from Calastone, which tracks money entering and leaving funds in the UK from financial advisers, fund supermarkets and wealth managers, show investors ploughed £1.3bn into active equity funds last month — compared to just £4m funnelled into passives.

August’s haul means equity funds have gathered £17.2bn of new investor money since November 2020, when successful clinical trials of the Pfizer, Moderna and AstraZeneca Covid-19 vaccines were announced. Active funds account for £12.6bn of this figure.

The vaccine announcements in November marked a turning point for active funds, which until that point had gathered £6.8bn of the £30.8bn investors had committed to equity funds overall since 2015.

READ ESG boom drives £1bn to active funds as passives lose steam

Edward Glyn, head of global markets at Calastone, said: “Every couple of years, we have seen a
period where investors take a greater interest in active funds than they do in their passive counterparts.”

Glyn pointed out that the current switch in favour of active is “particularly extreme”, with August marking the third-worst month for passive funds in five years.

Continued interest among investors in products with environmental, social and governance themes have also provided a boom for active funds, with ESG vehicles accounting for more than three fifths of active inflows since November, according to Calastone.

However, even with ESG inflows stripped out of the data, traditional active funds have edged ahead of index trackers with inflows of £4.7bn over the past 10 months, compared to £4.1bn for passives.

“Certainly, the rise of ESG funds has pulled investor focus from passives too, but we do not expect this to herald a long-term loss of faith in index trackers,” said Glyn.

“Low costs and solid returns remain key attractions that will gradually shift market share of total assets under management in favour of trackers.”

Calastone data also show slowing outflows for the UK’s embattled property fund sector, with redemptions of £77m last month marking the lowest amount of withdrawals since February 2020.

READ Investors fear more property fund casualties after Aviva closure

August was the third consecutive month that outflows slowed from UK property funds, which posted a record £561m in redemptions during March.

The onset of the Covid pandemic has ravaged property funds, prompting Aviva Investors and Aegon to shutter their UK real estate funds permanently.

Over the last 12 months, net outflows from UK property funds have reached £2.84bn, according to Calastone.

Glyn said while prospects were improving for the real estate sector, buying activity has not picked up dramatically.

“This suggests that the shake-out of property bears is mostly complete, but the bulls are still too shy to charge back in force,” he said.

“There are still big question marks about when a full return to work will take place and what the post-pandemic landscape will look like for the office and retail segments. Until greater clarity emerges, it is hard to see investor sentiment changing sharply for the better.”

To contact the author of this story with feedback or news, email David Ricketts

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