ESG fund flows breaks records despite active equity's continued decline
Fixed income enjoys another strong quarter
ESG and global equity funds both continued to break records over the past month and quarter, however this did not prevent active equity funds losing £638m overall in July alone, according to the latest Fund Flow Index from Calastone.
Over the course of April to July, global equity funds recorded four of the eight best months on record for inflows, with investors funnelling £3.1bn into the asset class, and £605m in July alone.
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"Overwhelmingly" global in their nature, ESG funds have boosted the global equity flows considerably, with one third of money committed to global funds over the last year heading to ESG investments; in June and July, this increased to over half, with July's figures seeing ESG global inflows of £320m, compared with £285m for non-ESG funds.
Year-to-date, FFI: Global ESG has averaged 78.4, meaning buying activity outweighed selling by over 3:1, compared to FFI: Equity, which has barely kept its head above water with 51.
Each of the last four months has seen a new record for ESG inflows, with the total £1.2bn inflows greater than the previous five years combined, almost all of which (99%) entered active management.
Equity funds overall suffered a second consecutive month of net outflows, with passive equity funds' inflows of £398m unable to negate active equity's £638m outflows, resulting in negative net flows of £240m in July.
UK equities were hardest hit, responsible for £377m outflows, bringing the two-month total outflow total to £1.1bn, while equity income funds broke its record for a second consecutive month as investors redeemed £705m.
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Reaching its 26th consecutive month of outflows, European equity funds lost another £62m, although this is the lowest level in nearly two years, well below the monthly average of £211m.
Fixed income maintained its strong performance, with another £654m flowing into the space in July, boosting its record to positive territory for 14 of the past 16 months.
Edward Glyn, head of global markets at Calastone, said: "Caution on equity markets has prompted outflows from equity funds for two months in a row.
"Weakness in stock markets in July seems to have justified that scepticism and ensured that June's outflows from equities continued though at a lower level.
"But even though capital is leaving equity funds overall, a wide gulf is opening up between those funds in favour and those leaving investors cold. The dichotomy between growth and value helps explain why this is happening.
"This explains the outflows from UK-focused funds and helps explain the increased surge in outflows from income funds. Meanwhile, global funds, where growth stocks make up a larger share of holdings, are benefiting from a flood of inflows.
"But crucially they are also benefitting from a huge marketing push by the fund management industry in favour of ESG funds, partly in response to very strong investor demand for ESG products and partly because they offer better margins for managers.
"Indeed because ESG funds tend to be actively managed, they are also the one area of real strength for active equity funds, which are otherwise suffering at the expense of their passive counterparts."
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