- Why Calastone?
Calastone’s fund flow data show that investors are increasingly shunning regionally focused funds in favour of global equities. Since 2015 global funds have enjoyed a net inflow of £51.3bn, while all other geographical categories taken together have seen just £909m of new capital. Even excluding unloved UK-focused funds which have suffered the biggest outflows, regionally focused categories have seen inflows of only £16.7bn since 2015, still less than one third as much as funds that invest with a global mandate.
Since the beginning of 2015, only nine months have seen net outflows from global funds (one in 11), compared to 51 months (one in two) for all other regional strategies combined.
The trend accelerated dramatically two years ago. Since July 2021, global funds have enjoyed inflows of £18.9bn, while funds with a regional focus have shed £21.1bn. Three-quarters of this selling came from UK funds reflecting both its size in the savings mix and a chronic loss of faith in British assets, but every regional category except emerging markets has seen outflows in this period.
ESG funds have been an important driver of the shift to global funds, but do not explain it entirely. They account for four tenths of the inflows to global funds since 2015 (£21.9bn) and seven tenths since July 2021 (£13.6bn).
Figures from the Investment Association show how assets under management mirror the trend. A decade ago, the value of funds investing in UK companies was double global funds. Global funds were catching up only slowly – even by October 2017, UK funds were still 70% larger than global ones. But since then the change has been dramatic. The Investment Association’s latest figures (May 2023) show that global funds are now one sixth larger than UK-focused funds (£166.4bn v £141.1bn).
Calastone’s fund flow data show that almost £6 in every £10 of the £88bn increase in global funds under management since 2015 has come from net fund inflows, with the rest therefore due to market movements and any retained dividend income.
Edward Glyn commented:
“There is a clear logic in opting for global funds. Most of the world’s most successful companies operate globally, so where they are listed is immaterial. Global funds mean investors get exposure to these stocks. They also save investors the worry of trying to pick winning regions – retail investors typically lack the time and expertise to stay on top of which parts of the world are on the up and which are on their uppers.
“In theory, global funds offer the most effective diversification too, though in practice there are flaws in this argument. The huge size of a few US technology companies means global funds that cleave to their benchmarks typically have a very large weighting to a handful of names.
“The trend looks unlikely to change. We see short periods when particular regions enjoy a moment in the sun – emerging market funds are enjoying significant inflows just now for example. But on the whole, investors are clearly content to set their allocation preference to global and allow their monthly direct debits to do the rest.”