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Equity fund inflows surge to five-year high

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The vaccine rollout has led to a five-year high of inflows into equity funds in the last quarter of 2020.

The latest Fund Flow Index from global fund network, Calastone, revealed that in December alone, inflows into equity funds surged to £2.4bn – the second-best month on record.

Over the quarter, inflows reached £4.6bn, the highest since the index was launched in 2015.

For the whole of 2020, equity inflows were £7.5bn, almost four times as great as in 2019.

Calastone said this was largely due to the rising interest in ESG funds, with investors buying a record £1.1bn in December. This is roughly the entire inflow from 2015-2018 combined.

Active equity funds also experienced a turn of fortune, with November inflows at £1.5bn and December at £1.7bn. December was the best month for inflows for five years, after experiencing cash withdrawals in two out of every three months in the last three years, Calastone noted.

Turning to index funds, inflows totalled £8.1bn last year, and nearly £20bn in the last three years. By comparison, active funds shed £2bn of capital.

Investors are also increasingly taking a shine to European equity funds after being out of favour until mid-2020. Since then, £870m has flowed in, with more than half in December alone. As such this was the best ever month for this category.

Meanwhile, UK focussed equities “had a tough 2020”. Calastone said that just £1 in every £64 of cash went to this category, the equivalent of £116m.

It added that the pandemic prompted dividend cancellations and once it became clear how big the Covid hit to the UK economy would be, outflows began. In the six months to December, £2bn left UK equities.

However, given the UK/EU trade deal and the vaccine programme, an immediate turnaround for UK stocks was noted with December outflows at their lowest in months.

‘ESG is now mainstream’

Edward Glyn, head of global markets at Calastone said: “The coronacoaster year for equity funds ended on a high as rock-bottom interest rates and the prospect of mass vaccination boosted both stock market valuations and the appetite to hold shares.

“The growing optimism that characterised the end of 2020 is reflected in the renewed appetite for active funds. Index funds are cemented into monthly savings plans and are now the default choice for most investors, but at moments of rising spirits and increased risk appetite, active funds benefit disproportionately as investors scour their fund ranges to find the one that meets their needs.

“A lot of the time that now means adding ESG considerations into the mix – no other single strategy has garnered as much in new capital in 2020 as ESG equity funds. Active fund managers will be overjoyed that ESG is now mainstream and represents an area where they have a real edge over passive funds, at least for the time being.”

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