The Great British Sell Off: 7 funds investors are fleeing

Investors have been fleeing UK equity funds since the Brexit vote, with the seven highlighted here seeing more than £1 billion leave the door.

Fears over Brexit have taken their toll on UK equity funds, with retail investors pulling a huge £10.5 billion since the EU referendum.

UK investors have traditionally favoured funds focused on the domestic market, which had topped the sales charts in the year leading up to 2016’s EU referendum.

Since then, however, they have been hit by heavy outflows, with £1 billion withdrawn in the month of the vote, a further £1 billion the month after, and a steady flow of redemptions since.

The latest figures from fund manager trade body the Investment Association show UK equity funds once again at the bottom of the sales charts, with £329 million withdrawn in September.

But a look through the funds hardest hit by this investor exodus shows that Brexit is not the only factor leading funds investors to flee the UK stock market.

Some of the funds that have shrunk the most have been struggling with outflows long before the UK voted to leave the European Union referendum. High profile fund manager changes, or performance issues that have been exacerbated, but not caused, by the vote, have also played their part.

And whatever the gloom surrounding the UK stock market, it’s proved no barrier to some UK funds with strong track records to buck the outflows and continue to attract investor money.

Click through the slides to see which funds have been hardest hit, and three standout examples of those that have continued to top the sales charts.

Next: Woodford Equity Income

Fears over Brexit have taken their toll on UK equity funds, with retail investors pulling a huge £10.5 billion since the EU referendum.

UK investors have traditionally favoured funds focused on the domestic market, which had topped the sales charts in the year leading up to 2016’s EU referendum.

Since then, however, they have been hit by heavy outflows, with £1 billion withdrawn in the month of the vote, a further £1 billion the month after, and a steady flow of redemptions since.

The latest figures from fund manager trade body the Investment Association show UK equity funds once again at the bottom of the sales charts, with £329 million withdrawn in September.

But a look through the funds hardest hit by this investor exodus shows that Brexit is not the only factor leading funds investors to flee the UK stock market.

Some of the funds that have shrunk the most have been struggling with outflows long before the UK voted to leave the European Union referendum. High profile fund manager changes, or performance issues that have been exacerbated, but not caused, by the vote, have also played their part.

And whatever the gloom surrounding the UK stock market, it’s proved no barrier to some UK funds with strong track records to buck the outflows and continue to attract investor money.

Click through the slides to see which funds have been hardest hit, and three standout examples of those that have continued to top the sales charts.

Next: Woodford Equity Income

Woodford Equity Income

Outflows since Brexit: £3.2 billion

Since peaking at £10.2 billion in May last year, investors have been fleeing Neil Woodford’s flagship fund at almost the same pace as they flocked to it when it launched four years ago.

The Woodford Equity Income fund had shrunk to £5.6 billion by the end of September, as the manager’s slide in performance prompted an investor exodus.

Woodford’s fund sits firmly at the bottom of the Investment Association’s UK All Companies sector over three years, down 8.8% to the end of October.

The fund’s heavy outflows also temper the argument that the broader exodus from UK funds should be tied solely to Brexit fears.

The scale of the outflows from Woodford’s flagship fund mean they account for a good chunk of the £10.5 billion that has flown from UK equity funds. Yet while the manager has now reshaped his portfolio to reflect his view that Brexit fears are overblown, and that the UK economy will perform better than expected, the portfolio problems that have led to the outflows have little to do with the vote.

Provident Financial (PFG) and Capita’s (CPI) problems began well before the vote to leave the European Union and had little to do with the dive in the shares of Allied Minds (ALML), which commercialises intellectual property, and Irish biotech company Prothena (PRTA.O).

Next: Invesco Income (UK) and High Income (UK)

Invesco Income (UK) and High Income (UK)

Outflows since Brexit: £2.8 billion and £1.9 billion

Mark Barnett, who took over from Neil Woodford at the helm of Invesco’s giant Income and High Income funds, had been dealing with heavy outflows long before the Brexit vote, and there’s been no let-up since.

The Income and High Income funds, which housed £11 billion and £14 billion of assets respectively when Woodford announced his departure from Invesco five years ago, have shrunk to £3.9 billion and £8.7 billion.

Barnett was first forced to contend with outflows from investors following Woodford to his new fund group. But money has continued to leave the door even after Woodford’s fortunes have turned.

Like Woodford, Barnett has been enduring a poor run of performance, with his High Income fund having delivered a marginal loss over the three years to the end of October, during which time the FTSE All-Share has risen 23.8%.

Barnett has suffered at the hands of some of the same stocks that have afflicted his predecessor, like Provident Financial (PFG), Capita’s (CPI) and Next (NXT). And like Woodford, he has been drawn to stocks reliant on the UK economy for their revenues since the Brexit vote as he believes investors are being ‘overly pessimistic’ about their prospects.

Next: AXA Framlington UK Select Opportunities

AXA Framlington UK Select Opportunities

Outflows since Brexit: £2 billion

Veteran fund manager Nigel Thomas has admitted he had a ‘bad Brexit’, a fact reflected in his £2.5 billion fund’s placing towards the bottom of the Investment Association’s UK All Companies sector over the last three years.

Investors have pulled £2 billion from the fund since the Brexit vote, after Thomas suffered his worst year relative to the FTSE All-Share in 28 years of managing money in 2016.

Thomas has run the fund for 16 years, racking up impressive performance of 361% in that time, ranking him 18 out of 121 funds in the IA UK All Companies sector.

However, he will be handing the reins over to Chris St John, manager of the AXA Framlington UK Mid Cap fund, in March next year.

St John – who was picked as Thomas’ successor in 2013 - has said there will be ‘no big bang’ when he takes over next year and will continue to search for companies that grow their dividends.

Next: M&G Recovery

M&G Recovery

Outflows since Brexit: £1.4 billion

M&G Recovery’s presence on the list is another sign that Brexit fears are not the sole factor behind the heavy outflows for UK equity funds.

Investors began pulling money from Tom Dobell’s fund, which once housed around £9 billion but now stands at £2.7 billion, long before the EU referendum.

Dobell’s once-stellar record has come unstuck in recent years as his value focus has been firmly out of favour. Although the fund enjoyed a decent 2016 as value enjoyed a brief resurgence in the second half of the year, it had underperformed the FTSE All-Share in the previous five.

In his annual fund report at the end of June, Dobell said investors’ flight from UK shares had been a problem for the last four years. ‘Net outflows by retail investors from UK equities have been significant since 2012, especially in the past two years as anxiety over Brexit, political uncertainty, subdued economic growth and currency weakness caused investors to reduce their exposure to UK plc,’ he said.

Rather than worry about the impact Brexit is having, Dobell is focusing on the opportunities it has created.

‘Sterling’s Brexit-related depreciation has made the UK more attractive to overseas buyers as evidenced by a spate of takeover approaches,’ he said.

Dobell added he would continue to take ‘a contrarian view’ and ignore the ‘short term noise’ around Brexit to take advantage of ‘mispriced risk’.

Next: JOHCM UK Opportunities

JOHCM UK Opportunities

Outflows since Brexit: £1.4 billion

Like Invesco’s Mark Barnett, JOHCM UK Opportunities managers Rachel Reutter and Michael Ulrich have had to contend with the twin challenges of stepping into the shoes of a strong long-term performer and managing against a backdrop of outflows.

At £534 million, the fund is now less than a third of the £1.8 billion size it stood at in March 2017, when John Wood, manager for 12 years, announced his retirement.

His performance on the fund earned him a spot in online stockbroker TD Direct’s 2016 ranking of the 25 best fund managers in UK markets over the previous decade, having made investors an average of 10.8% a year, versus 5.6% from the FTSE All Share.

In an interim report for the six months to 30 June, Reutter said she and Ulrich were investing ‘in an era where politics is more important than economics’.

‘For the past 30 years, the prevailing view of those in power has been that free markets will deliver the best outcome for all…that view is being challenges and the implication for equity investors will be significant,’ she said.

She has reduced the exposure to utility companies and other ‘business to government’ stocks as ‘the change in the political environment is likely to result in future returns for these companies being significantly lower than those achieved in the past’.

Next: Artemis Income

Artemis Income

Outflows since Brexit: £1.1 billion

Like Woodford Equity Income and Invesco’s Income (UK) and High Income (UK) funds, Artemis Income is one of the big beasts of the UK equity income sector.

Even after seeing more than £1 billion leave the door since the Brexit vote, Adrian Frost, Nick Shenton and Andy Marsh’s fund still houses £6 billion in assets.

Returns over the last three years have been reasonable – although 17.6% to the end of October lags the FTSE All-Share, the fund is still ahead of the average for managers in the Investment Association’s UK Equity Income sector.

But the fund has been hit by the broader bearishness towards UK stocks, and income strategies in particular.

More recently, performance has been dented by the fund’s holding in pharmaceutical giant Bayer (BATGn.DE), hit by a US court ruling over damages against recent acquisition Monsanto.

Indivior (INDV) also knocked the fund, after the drug maker warned it had ‘substantially underestimated’ delays in getting its opioid addiction drug Sublocade to patients.

In his most recent quarterly update, Frost said UK stocks continued to be weighed down by Brexit fears. ‘Once again, the blanket of Brexit cloaked the preparedness of investors to buy UK shares, allied with the political instability that may lie within the outcome of Brexit.

Next: three UK funds bucking the trend

Lindsell Train UK Equity

Inflows since Brexit: £2 billion

Not all UK-focused funds have seen large outflows, as Citywire AA-rated Nick Train, manager of the Lindsell Train UK Equity fund, can testify.

The mammoth £5.8 billion fund has outpaced the FTSE All-Share over one, three, and five years.

Train, who describes himself as a ‘raging bull’ believes ‘the odds in investment are very much in your favour if you adopt a positive outlook’.

It is with this positive outlook in mind that Train believes Brexit ‘will work out just fine in the end’ and was even encouraged to add to his concentrated portfolio of 26 stocks last year, the first addition for two years, buying Manchester United (MANU.K) shares.

As investors debate the end of the rise of growth stocks, Train has said he is staying out of the growth versus value debate and instead focusing on digital disruption.

‘In 2018, it looks as though working out which companies are advantaged and which challenged by digital disruption may deliver better returns than establishing what is currently “cheap” or “dear”, or whether macroeconomic trends favour “cyclical value” or “quality growth”,’ he said.

Next: Liontrust Special Situations

Liontrust Special Situations

Inflows since Brexit: £1.4 billion

Whatever the stock markets throw at Anthony Cross and Julian Fosh, the managers have responded by continuing to outperform.

Both have been Citywire AAA-rated for 27 consecutive months, and their £4.1 billion Liontrust Special Situations fund sits in the upper reaches of the Investment Association’s UK All Companies sector over one, three, five and 10 years.

Cross has manged the fund since its launch in 2005, delivering 390% since then, with Fosh joining him in 2008.

The managers invest across companies of all sizes on the UK stock market: although 45% of the fund is invested in the blue-chips of the FTSE 100, around a quarter is held in ‘mid-cap’ stocks with a sizeable 17.3% in Alternative Investment Market shares.

The fund’s position on Hargreaves Lansdown’s Wealth 150 list won’t have hindered flows, and Liontrust will be hoping their star offering survive the UK’s largest online stockbroker planned culling of its ‘best buy’ list.

Next: Evenlode Income

Evenlode Income

Inflows since Brexit: £855 million

While other UK funds battle with outflows, the £2.5 billion Evenlode Income fund has been attracting investors at such a pace that the Chipping Norton-based investment group was forced to ‘soft-close’ the fund in May.

Evenlode Income is the best performing income fund in the UK All Companies sector over three years, with a 40.5% return to the end of October.

Citywire AA rated Hugh Yarrow and co-manager Ben Peters’ strong long-term performance has helped the fund’s growth accelerate rapidly over the last two years, having only passed the £500 million mark in 2016.

Even the soft closure in May, which imposed a 5% initial charge on new investors but didn’t place any restrictions on existing investors, or new investors on platforms that already held the fund, has done little to halt the inflows.

Yarrow’s focus on quality companies that are able to continue growing their dividends has seen him drawn to the consumer goods giants favoured by the likes of Nick Train and Citywire AAA-rated Terry Smith. Unilever (ULVR) and Diageo (DGE) are the fund’s top two holdings.

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