UK active funds outsprint passive rivals amid market flux
Active fund managers outperformed index trackers for nine out of the last ten months, as British investors put their faith in a human touch to navigate volatile markets and ever-popular ESG investments.
UK equity funds managed by stock pickers saw inflows rise to £1.3bn in August, staving off the threat of passive trackers, who raked in just £4m – the biggest gap since funds network Calastone began tracking the data in 2015.
News of successful Covid vaccine trials in November last year marked the turning point in investor sentiment towards equity funds.
Of the £17.2bn net new capital poured into equity funds since then, three quarters (£12.6bn) went into active funds.
Fund flows had previously been largely absorbed by passive rivals – between 2015 and the vaccine turning point, only one fifth (£6.8bn) of the £30.8bn invested in equity funds had been pumped into active vehicles.
“The current switch of focus is particularly extreme,” said Calastone Head of Global Markets Edward Glyn.
“The unusual times we live in seem especially suited to greater engagement by investors with their fund holdings.”
ESG funds have accounted for around three fifths of inflows into active funds since November, driven by a combination of increased investor conscience and also business savvy.
As investors assess the resilience of companies in a post-pandemic world, sustainability and governance will become key indicators – and funds focused on these issues have predominantly ridden the pandemic wave better than others.
But as markets even out post-pandemic, Glyn predicts index trackers will once again come to the fore.
“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,” he said.
“Low costs and solid returns remain key attractions that will gradually shift market share of total assets under management in favour of trackers.”