Some of the industry’s best-known names were among those that saw the biggest falls in size last year, according to data from FE Analytics.
Following a relatively positive year for markets in 2017, last year was a much-changed environment for fund managers.
The rate-hiking by the Federal Reserve and its withdrawal of liquidity from the financial system combined with an ongoing US-China trade dispute to send investors fleeing from risk assets.
After the first 11 months of 2018 net retail sales stood at just over £9bn – according to the most recent data from the Investment Association – which would signal the third-worst year on record if there were no further inflows or outflows and is significantly lower than 2017’s record inflows of £48.5bn.
However, it was the underperforming fund giants that were among those experiencing the biggest declines in assets under management, whether through outflows, internal reallocation of capital or fund migration.
Having previously looked at the funds attracting the most money, FE Trustnet has found out which funds available to retail investors got smaller last year.
At the bottom of the table was Standard Life Investments Global Absolute Return Strategies (GARS), which shrank by just over £8bn last year. Weaker performance contributed to a £1bn decline in fund size, with outflows accounting for the remaining £7bn, as the fund fell to £12.6bn from £20.7bn by year-end.
Performance of fund vs sector & benchmark in 2018
Source: FE Analytics
Last year GARS recorded a loss of 6.08 per cent compared with a decline of 2.81 per cent for the average IA Targeted Absolute Return peer – although the sector is home to a range of strategies – and a 0.83 per cent rise for the LIBOR GBP 6 Months benchmark.
The multi-asset strategy has fallen from favour among advisers and investors in recent years – and topped this study in 2017 – following lacklustre returns and the departure of key personnel to rival firms.
Compared with 2017, the scale of the falls in fund size were considerably larger. Yet, this is not solely explained by outflows, with capital transferred from some UK-domiciled structures to overseas products as asset managers making preparations for the post-Brexit environment.
Indeed, six M&G funds featured in the top 20 funds that shrank the most, including the five FE Crown-rated M&G European Corporate Bond fund and two strategies overseen by FE Alpha Managers: Richard Woolnough’s M&G Optimal Income and Claudia Calich’s M&G Global Macro Bond funds.
The asset management house has been in the process of migrating the non-sterling share classes of UK-domiciled OEIC funds to equivalent SICAV funds in its Luxembourg range, as part of its Brexit preparations.
“Our priority is to minimise disruption for our investors by providing as much certainty as we can,” said Anne Richards, chief executive of M&G, last May.
“The proposals we have announced today aim to protect the interests of our non-UK customers by offering continued access to the current range of M&G’s investment strategies, regardless of the final outcome of the negotiations.”
Source: FE Analytics
But the stand-out pattern from last year’s fund size data is the declining size of UK equity funds, one of the most unloved sectors of the market, led by FE Alpha Manager Neil Woodford’s LF Woodford Equity Income fund.
LF Woodford Equity Income saw a significant negative performance effect of around £1.2bn – the largest recorded by a fund last year –which combined with a fall of £2.4bn taking fund size to £4.7bn.
Last year the fund made a bottom-quartile 16.47 per cent loss while its average IA UK All Companies peer dropped by 10.74 per cent.
Three other UK equity strategies also saw significant falls in fund size last year, including two overseen by Woodford’s successor at Invesco Perpetual, Mark Barnett: Invesco High Income (UK) and Invesco Income (UK)
Given the similar styles of both Woodford and Barnett, it was little surprise that negative performance effect of £1.1bn on the Invesco High Income (UK) fund was the second largest after LF Woodford Equity Income. Last year the now-£7.5bn fund made a loss of 10.98 per cent.
The poor performance of the UK market left its mark on a number of funds focused on the domestic market, as can be seen below. Six of the top-10 funds, including two index-tracking strategies, were among those suffering the biggest from performance-related falls last year.
Source: FE Analytics
Ongoing Brexit negotiations have continued to impact performance of the UK stocks as the outlook for the economy remains uncertain, with the FTSE All Share making a 9.47 per cent loss in 2018 lagging the developed markets-focused MSCI World index, which was down by just 3.04 per cent.