Investors Seek Fixed Income And Money Market Funds Amid Heightened Risk Aversion

To counteract ongoing Brexit uncertainty, investors increased exposure to short-term money market funds and government bonds in April 2019, for the second consecutive month, continuing an ongoing trend for heightened risk aversion.

A combined £1.5bn flowed into fixed income and money market funds, while alternatives and equity funds saw outflows of £4.4bn in April.

The Morningstar Direct UK Asset Flows Update April 2019 said: "Fixed income and money market funds saw inflows in April, continuing the trend seen in March, as investors seek relative safety in an environment of persistent political uncertainty. With the possibility of a general election in the UK, European parliamentary elections, and increasingly protectionist policy by

the US, investors have been unwilling to ride out higher volatility in riskier assets."

The report added 'allocation funds' have also benefitted from increased investor caution with small inflows for the first time since August 2018. For example, outflows from property funds have been reducing - they saw a peak outflow of £285m in December 2018 and this has gradually reduced down to £37m by the end of last month.

Meanwhile, equity funds had the largest outflows in April with some £1.5bn exiting the asset class. This figure was notwithstanding the £2bn move from Fundsmith Equity's UK-domiciled vehicle into its Luxembourg and feeder funds.

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Manager changes

Morningstar also noted a number of funds saw outflows due to changes in management.

For example, Jupiter European had its rating downgraded from Gold to Neutral following the announcement manager Alexander Darwall was stepping down from the fund.

Outflows of £113m from the mandate led to another month of outflows for the Europe ex-UK Large-Cap Equity category, among the worst categories for outflows over the past year.

Meanwhile, Glen Finegan's (head of global emerging market equities at Janus Henderson) departure in April saw investors quick to react, with Morningstar reporting outflows of £142m from the Janus Henderson Emerging Markets Opportunieis fund, one fifth of the fund's assets and affecting flows for the overall Global Emerging Markets Equity categories. The remaining four members of the fund's management team are also set to leave the firm on 30 November 2019.

A Janus Henderson spokesperson said: "Janus Henderson is actively pursuing various options for maintaining our global emerging Markets capability, including recruiting new talent to our investment team. We remain fully committed to the emerging markets asset class."

Morningstar also noted the retirement of Andrew Rose from Schroder Tokyo fund, which lead to a downgrade from Gold to Neutral, was partially to blame for "sizable" outflows from the Japan Large-Cap Equity category.

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Bhavik Parekh, Associate Analyst, Manager Research, commented: "Fixed-income and money market funds saw inflows in April, continuing the trend seen in March, as investors seek relative safety in an environment of persistent political uncertainty.

"With the possibility of a general election in the UK, European parliamentary elections and increasingly protectionist policy by the US, investors have been unwilling to ride out higher volatility in riskier assets."