Brexit ‘stampede’ out of UK funds

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M&G, Schroders, Fidelity and Invesco suffered billions of euros of withdrawals in June as the first set of data since Britain’s vote to leave the EU shows how badly UK fund houses were hurt by the result.

European investors pulled at least €1bn from the each of the four large investment groups, which are either based in the UK or have large hubs in the country. M&G, Schroders, Fidelity and Invesco were among the five worst-hit asset managers in June.

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Ali Masarwah, director of the Europe, Middle East and Africa research team at Morningstar, which collected the data, said UK managers suffered as investors looked to cut risk, selling out of equity funds and reducing their reliance on companies expected to be hurt by the referendum result.

“The last month was all about reducing risk because of the Brexit vote. The [fund houses with the largest outflows] are British names or have a main base in the UK, and you would expect a lot of investors to exit their funds,” he said.

“This was basically the stampede of nervous investors exiting these equity funds.”

Morningstar’s figures showed that equity funds domiciled in Europe suffered their largest redemptions last month since September 2011.

In the immediate aftermath of the UK’s surprise vote to leave the EU last month, sterling fell to 30-year lows and markets tumbled. The share price of many listed asset managers in the UK also plummeted.

Mark McFee, publications editor at Mackay Williams, the research company, said: “The outflows from some of the more UK-centric groups represent an initial knee-jerk reaction to the Brexit vote.

“Although the polls were telling us the vote would be close, the result still seems to have caught markets, companies and governments off guard. The result has led to a lot of uncertainty.”

America’s Franklin Templeton also ranked among the five asset managers with the largest outflows in Europe last month. The investment manager, which is best known for its emerging market funds, has struggled with outflows for more than a year.

Henderson Global Investors, another UK-based fund house, had the sixth-largest outflows, after suffering redemptions of more than €1bn from its European mutual funds during June, according to Morningstar.

Henderson was one of eight UK-based asset managers to suspend redemptions from its property funds as investors rushed to withdraw money following the Brexit vote.

Morningstar’s figures include open-ended funds, which are often used by retail investors, and exchange traded funds.

Analysts said the outflow picture is likely to get worse, as institutional investors such as pension funds pull money from UK managers over the coming months.

Peter Lenardos, an analyst at RBC Capital Markets, the investment bank, said that in addition to negative retail flows, it is also likely that institutional investors will delay transferring money they have already promised to asset managers.

A survey of 45 European fund selectors, including investment consultants, family offices and funds of fund managers, shows that many investors are concerned about whether UK managers will face restrictions when selling funds in Europe once Britain leaves the EU.

Brexit blues: fund houses with largest outflows
June redemptions from open-ended funds and ETFs in Europe (€bn)
Franklin Templeton -1.88
Fidelity -1.29
M&G -1.29
Invesco -1.22
Schroders -1.16
Source: Morningstar

Sixty per cent of those polled by Accelerando Associates, the research company, said they expect to sell out of or reduce their exposure to UK-domiciled mutual funds known as Ucits in the wake of the Brexit vote.

Three in 10 say they will reduce their exposure to funds run by British investment houses, even if the products are domiciled outside the UK.

Philip Kalus, founder and managing partner of Accelerando Associates, said: “There is really bad news on the cards for UK asset managers.”

M&G and Invesco declined to comment. Schroders and Henderson were unable to comment because of rules restricting what they are allowed to discuss ahead of their quarterly results next week.

Fidelity, which was the best-selling manager in the UK during the first quarter of 2016, according to statistics from the Pridham Report, which monitors fund sales in the UK, said: “In June, a large client made the decision to move their assets, which has had some impact on this short-term data.”

Mr Lenardos said the outlook for asset managers in the UK “is not good”. “In addition to a poor flow outlook, I think performance fees will remain low,” he added.

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