As published on telegraph.co.uk, Monday 6 April, 2020.
UK-based investment funds endured their worst ever month of outflows in March as investors withdrew £3.1bn, almost three times the previous record set in the month of the Brexit referendum in 2016.
The sell-off was driven by a rout in bonds, where investors pulled out a net £3.8bn as they rushed to avoid being burned by a possible wave of companies defaulting on their debts, according to Calastone’s Fund Flow Index, which has tracked the data since 2015.
Corporate bonds, which companies use to borrow money, are normally seen as a safer investment than shares when markets begin to tumble because they pay a fixed interest rate irrespective of the borrowing company’s profitability.
But fears that last month’s sudden stop in economic activity could leave companies unable to pay have sparked a sell-off.
Edward Glyn, head of global markets at Calastone, said: “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.”
The data, which tracks trades by UK investors in British-domiciled funds, also lays bare the effect of a string of property fund suspensions as real estate flows froze completely in the second half of the month.
Property funds barred investors from making redemptions because the coronavirus crisis has made it impossible to properly value buildings and land.
Aviva, Columbia Threadneedle, Aberdeen Standard Investments, Legal & General, Schroders and BlackRock are among the asset managers who have pulled the shutters down to protect investors.
As stock markets tumbled, investors withdrew a net £1.7bn from actively managed equity funds, in which managers attempt to beat the overall market by backing winning stocks.
But index-tracking funds that aim to match the performance of a basket of shares enjoyed inflows of £1.4bn, a potentially unexpected outcome as active funds are often considered a better investment during a downturn.
“Active managers tend to do rather well in difficult times for stock markets so the big outflows from that segment at a time of such big inflows to passive funds are a little surprising,” Mr Glyn said.