It’s been another fantastic year for asset management. Sales of investment products pushed through new record levels in 2021.
But what is selling? Where are investors putting their money? And what is being avoided?
Sifting through Morningstar, Citywire, Lipper, Investment Association and others, can provide direction on what’s hot and what’s not in the investment landscape currently.
Risk on.
It was another year when European investors piled into funds at record levels – and embraced risk by investing into equity funds especially.
Estimates are for over €720 bn. invested in funds in 2021, with about half going to equities. Global equities were the asset of choice for many, as economies staged a strong bounce from Covid suppression levels, company profits surged and Central Bank policy remained very supportive. In the UK over 1/3 of net retail sales went to equity funds, again with global equities taking the lion’s share. The former darling sector of Equity Income actually saw net outflows.
In Europe, flows into funds exceeded flows into ETFs by about 3 to 1. And according to Lipper, about 70% of investor cash went to actively managed funds as opposed to indexed.
Records were also smashed in the US. Investors poured $1.2 trillion into long term funds and ETFs. This was nearly double the previous record set in 2017. However passive managers substantially out-paced their active counterparts especially in the US equity space.
Bond funds were a bit of a conundrum in this period – as they managed to feature at both the top and bottom of the class. The data still shows an appetite for bond funds – close to €200 bn in Europe , which given the abysmal yields available, coupled with the prospect of Central Banks withdrawing support, seems misplaced. However when we look at some of the top individual funds, it seems more reasonable. Two of Citywire’s three top selling funds in 2021 were bond funds while the third also has material exposure to Fixed Income. However rather than plain vanilla bond exposure these were “strategic” bond funds, with the ability to go anywhere in search of some level of income. This reflects continued investor demand for income in a zero interest rate world. So two of these top three selling funds delivered returns of just 2% – but fully met investor expectations.
However at same time, looking at the funds that suffered massive outflows, bond funds again featured, accounting for 8 out of the 10 worst. Root cause was bond market weakness, especially in Emerging Markets but many strategic bond funds were simply wrong footed. Markets (and investors) were unforgiving. The worst fund saw an outflow of just over € 8 Billion!
Choice of manager mattered as much as choice of asset!
ESG remains a prime driver in gathering assets, both active and indexed. 51% of the money headed to European ETFs in 2021 was directed towards those with an ESG mandate. This is up from 40% in 2020 and 10% in 2019. ESG was especially a feature in the UK, not only winning new monies but taking market share from “non-sustainable” funds.
As well as – what’s selling, it is interesting to look at – who’s selling?
Some 18 months ago, I wrote that one aspect of this Zoom world and WFH would be the difficulty of making new sales to new clients. Building that very critical feature of trust may be harder in the virtual world. This would lead fund buyers to rest upon the tried and tested options and favour incumbent asset managers. This can actually now be seen from a list drawn up by Morningstar of the top ten largest US fund firms at the end of 2021 and at the start. The names and the order are practically the same.
Making material headway with new clients in “Zoomworld” is tough!
Investors were well rewarded for owning funds and favouring equities in 2021.
2022 with the prospect of higher interest rates, slower growth, and possible inflation has already proven to be a challenge. It remains to be seen whether the same “risk-on” strategy is vindicated.
Tradewinds 