Investment funds predicatably suffered record redemptions in March due to Covid-19 - yet passive investments received “surprising” inflows from investors who experienced the highest volatility level ever seen in financial markets.
Calastone, which collects data on fund flows in the UK, said £3.1 billion was withdrawn from fund holdings throughout the month and that there was record volatility in fund flows from week to week and the divergence between flows from one asset type to another was at its highest level ever.
The figures suggest fixed income was not seen as safe haven. By the end of March an “unprecedented” £3.7 billion of capital had been withdrawn from the sector – 13 times more than January 2019, which was the previous worst month.
According to Calastone, these outflows “wiped out” the accumulated inflows from the preceding eight months.
While overall equity funds recorded just £244 million of redemptions, active funds suffered their second-worst month on record, as investors went into crisis mode and withdrew £1.7 billion.
Edward Glyn, head of global markets, said: “Market crises are superficially all the same as volatility soars and asset prices collapse, but they differ enormously in the detail.
“The temporary loss of fixed income as a safe-haven asset class to counterbalance some of the huge losses in equity markets left investors with little option but to ride it out or park their money in cash or cash-equivalents like money market funds.” Money market funds saw £854 million of inflows.
Data shows that the Covid-19 crisis had a bigger impact than the country’s referendum to leave the EU, yet so far equity funds are “weathering the storm” quite well. UK-focused equities had their second-best month in four years, attracting £508 million of new capital.
Real estate fund managers gated their funds two thirds of the way through the month, no longer able to value their assets reliably and therefore judging it imprudent to attempt to meet cash calls with property sales.
Glyn added: “However long this crisis lasts and whatever other twists and turns are in store, it has one thing in common with all the others: it will pass.”
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