Cautious multi-asset funds have suffered outflows in the first three months of 2023, while more money has been put in into more aggressive options, data from FE Analytics showed, suggesting that investors have taken a more risk-on position since the start of the year.
Within the three IA Mixed Investment sectors and the IA Flexible Investment sector, people have preferred the funds with more equity exposure compared with those that have larger weightings to bonds.
This could play to their advantage if Liontrust’s John Hussebee is right and opportunities are indeed emerging through the cracks in markets. In a recent article for Trustnet, he specified that “anyone hoping for a raging bull market in 2023 is likely to be disappointed”, but also reminded investors that “the best returns can be made by investing in markets in the darkest times. And as we survey global markets today, we are seeing more reasons to be optimistic”.
It was perhaps with this more positive attitude that investors withdrew £262.5m from Vanguard LifeStrategy 40% Equity and preferred the Vanguard LifeStrategy 80% Equity instead, which is more likely to make better returns in a bull market due to its higher structural allocation to equities.
The latter took in £285.7m in the first quarter of the year, the biggest inflows of any fund across the four sectors, as shown in the table below.
Source: FE Analytics
Not far behind the already mentioned Vanguard strategies is another fund from the same investment house – the SustainableLife 60-70% Equity fund, which added £81.5m to its assets under management (AUM).
In third position and with 76.9% of its portfolio invested in equities, HL Growth, which acquired £118.8m, is another bullish play, especially considering its skew towards consumer discretionary and technology stocks, which tend to perform better when interest rates are falling.
At the foot of the inflows table, Royal Bank of Scotland Coutts Managed Ambitious and VT AJ Bell Moderately Adventurous also have about 70% of their portfolios invested in equities.
The remaining three strategies in the list had more exposure to fixed-income in different geographies. In the IA Mixed Investment 20-60% Shares sector, IFSL YOU Multi-Asset Blend Balanced attracted a sizable £176.8m sum. It is 40.9% weighted to bonds and has a FE fundinfo risk score of 55.
In the IA Mixed Investment 40-85% Shares, VT AJ Bell Balanced has an identical risk score but achieves it with a lower bond exposure (28.7% in global, 5% in UK corporate fixed interest). With a higher risk score of 64, BNY Mellon Multi-Asset Balanced only has 7.1% globally and 12% in UK fixed interest and attracted £76.6m.
Source: FE Analytics
The table above shows the funds that suffered the greatest outflows instead, with moderate and cautious strategies dominating the list.
In second place after Vanguard LifeStrategy was Troy Asset Management Trojan, which shed £150.4m. The FE fundinfo five-crown rated portfolio is led by FE fundinfo Alpha Manager Sebastian Lyon, who is known for taking a more defensive stance.
In the fund’s March factsheet, he said: “Year-to-date stock market performance does not reflect the level of risk Western economies are facing.
“We expect that once the blanket of a stronger consumer (thanks to post-Covid recovery tailwinds) is lifted, the issues will become more apparent. We believe weaker earnings will drive markets lower.”
His strategy, as described by Square Mile researchers, is to “be patient and preserve investors' capital during periods when risks are high and take on more risk when the riskreturn potential is more favourable.”
Typically, this fund is used by investors who are seeking “a level of return similar to that of equities but are uncomfortable with the level of risk typically associated with investing in this asset class”, they said.
Three Quilter Investors funds suffered indiscriminately at different levels of risk – its Cirilium Moderate, Balanced and Dynamic portfolios are now £141.7m, £138 and £83m short, respectively.
Baillie Gifford Managed also bore the brunt of investors’ continued flock away from the Edinburgh-based investment house, which was hit hard last year as its growth style of investing came under pressure from rising interest rates.
Other noteworthy funds in the list included Royal London Sustainable Managed Growth Trust and JPM Multi-Asset Moderate.