Investors flee UK funds for cash with bond funds the worst hit
Record amounts have flowed out of UK funds this month with bond funds hit the hardest as investors flocked towards cash.
As the coronavirus crisis deepens and fears of a recession mount, UK funds have shed £4.4bn in the month to date, according to figures from global funds network Calastone.
This week there was a slight shift to optimism as £816m flowed into UK funds from Monday to Wednesday. However, this month will still see the worst outflows across the totality of UK funds.
Bond funds saw a record £3.5bn of redemptions as investors fled for cash.
“Bonds are traditionally seen as safe havens but investors are preferring the safety of cash and money market funds at the moment”, said AJ Bell’s head of active portfolios Ryan Hughes.
The stimulus packages from the Federal Reserve and the US government this week have calmed nerves somewhat. Outflows from bond funds are still large – £156m on Monday – but have slowed from last week, which saw £440m in outflows in just one day.
Edward Glyn, Calastone’s head of global markets, said: “Widening yield spreads for corporates and countries considered most at risk pushed bond prices down while a dollar liquidity squeeze meant money markets were unable to function normally for a time, leaving investors nowhere to go but to cash.”
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Flows into UK equities were the first to improve a week ago and are on a slow rise. In the past three days inflows reached £198m and have now seen net inflows in the month to date.
Glyn said: “This reflects the exceptionally low valuation of UK assets relative to other markets as well as a level of home-market bias.”
Outflows from global funds have also slowed since last month, with a small inflow of £6.7m on Wednesday.
Active funds have born the brunt of the coronavirus outbreak with £1.9bn in redemptions. Passive funds have fared comparatively well, seeing more than £1bn inflows this month.
Hughes said: “There is a sense people are becoming more relaxed and central banks launching quantitative easing programmes has given investors confidence.”
Real estate funds shed £115m in March before they were gated after independent valuers introduced material valuation uncertainty clauses.
L&G, Columbia Threadneedle and Janus Henderson were among the investment firms who were forced to suspend their property funds.
Glyn said: “Despite the greater sense of calm, it’s unlikely we are out of the woods. The crisis has a long way to run and we will also get more and better information. Undoubtedly that means more convulsions to come.”