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Fund inflows bounce back in November, but investors are skittish, says Calastone

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Fund inflows rebounded in November as UK investors took advantage of the sharp drop in global stock markets at the end of October, according to the latest Fund Flows Index (FFI) from global funds transaction network Calastone.  

The new monthly index tracks orders representing millions of individual investor decisions, and is the most comprehensive, and up-to-date measure of UK fund flows, according to Calastone.
UK investors committed a net GBP2.2 billion to funds in November, more than double October’s total. This took Calastone’s FFI to 54.0, up from the two-year low of 51.6 reached in October when sharp reversals hit global financial markets across a variety of asset classes. Even so, this still left the index in November below both its long-run average, and its average for the last twelve months (55.2 in both cases; 50 means inflows equal outflows). Total trading volumes (the sum of buying and selling) were also below the average for the last twelve months (down by a tenth), though this is set against a busy year of activity for investors.
Equity funds had the best month since April, seeing GBP782 million of net inflows. The FFI Equity rose to 52.9, its highest since January. Global funds accounted for the largest share, while North American equity funds saw the strongest net inflow in over a year (FFI North America 60.1), more than reversing net sales seen in October. Investors’ renewed enthusiasm for UK equities was sustained in November, but European equities remained out of favour as economic news from the eurozone continued to disappoint. Property funds saw a second consecutive month of outflows, taking net sales to GBP208m since the beginning of October, the worst performance since the aftermath of the Brexit referendum in 2016. The FFI Real Estate was just 43.8 in November, well below the neutral 50 mark.
Despite the overall positive figures in November, the month was split clearly into two halves. In the first two weeks, fund flows were positive every day, but by the second half, renewed volatility in global markets meant investors withdrew capital on several occasions, only to jump back in when prices fell. For example, 15 November saw heavy net selling as markets were steadily falling, but investors bought back enthusiastically six days after, on 21 November, as markets touched the bottom. Total trading volumes were noticeably higher on these inflexion days than on less dramatic days, and most of the activity was in equity funds. Capital flowed out of property funds on every day except one in the second half of the month.
Inflows from UK investors to offshore funds remained stronger than those domiciled in the UK, a trend which Calastone attributes to nervousness about the regulatory status of UK-domiciled funds post-Brexit in March 2019. Offshore funds saw a net inflow of GBP1.5 billion in November, with the FFI Offshore registering 55.6, in line with its post-referendum average and well ahead of pre-referendum levels.
Edward Glyn, Calastone’s Head of Global Markets, says: “November has been a good month for fund flows but investors are much more skittish than the positive overall figures for the month suggest. We expect Q4 2018 to see the weakest fund flows since 2016. Asset prices are currently very volatile, so investors are watching the markets day by day, and dipping in and out in reaction to fast-changing news. Timing the markets is tricky even for professionals, but investors are clearly giving it a go to try to lock in short-term profits. Fund flows longer term are structurally positive, however, as investors aim to steadily build their savings.”
Meanwhile, news flow for the real estate sector has been very poor recently amid concerns about asset values, culminating in the collapse of Intu Properties takeover talks. That seems to be making investors in property funds nervous, and is prompting outflows.”

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