Asset managers have said they are navigating tough investment conditions in the UK, as economic turmoil reduced the value of their portfolios and persuaded customers to pull and divert their cash.
London-based firms including Jupiter, Schroders, and St James’s Place issued trading updates on Thursday, which laid bare the challenges facing fund managers amid soaring inflation and global uncertainty, including the effects of the war in Ukraine.
“A worsening macroencomic backdrop, continued geopolitical challenges and inflationary concerns, particularly in the UK, again weighed upon investor sentiment in the third quarter,” Jupiter Fund Management said.
Jupiter suffered net outflows – the balance between the funds invested v money pulled by clients – worth £600m over the three months to the end of September.
That was despite investors placing £3.8bn-worth of new cash with the firm over the quarter, including £500m from an unnamed sovereign wealth client that was pumping fresh cash into UK investments.
Overall, the value of assets managed by Jupiter fell by 2.9% over the last quarter to £47.4bn.
Assets under management also fell at Schroders, dropping 2.7% to £752bn in the quarter. That included a £20bn decline in its “solutions” division, which covers funds focused on liability driven investing, or LDI.
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LDI funds were blamed for magnifying the recent market turmoil, which was triggered by fears over the government’s mini-budget and resulted in a severe drop in UK bond prices. The fall triggered collateral calls on pension funds’ hedging contracts, forcing them to sell assets at speed to raise cash, but resulting in a further drop in prices.
The Bank of England stepped in with an emergency two-week, £65bn bond-buying programme to halt the rout.
More broadly, “outflows we have seen are down to investor sentiment”, Jonathan Miller, a director at the data provider Morningstar, said. “UK equities have been out of favour for a number of years, so domestic managers whose assets are biased towards our home market will have felt the effects.
“Despite the UK market falling a lot less than the US this year, political wranglings are contributing to the appetite for UK equities still being low.”
Hargreaves Lansdown noted that although investor confidence was starting to improve after hitting an all-time low in September, the UK remained one of the most “unloved” regions.
Emma Wall, the head of investment analysis at Hargreaves Lansdown said investors had been putting their money in three places instead. They include money market funds, which are funds that invested solely in cash or cash equivalents like government and short-term corporate bonds, which are easy to buy and sell.
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Wall added that energy funds – renewable and fossil fuel funds – were another popular destination for investor cash, alongside income funds that invest in companies that tend to issue dividends. “Although share prices have been falling, dividends remain largely intact – for now,” Wall said.
“It is hardly surprising UK investors are feeling glum. The cost of living crisis is even more acute – and those hoping for a political knight on a white horse have been sorely disappointed. We have been treated to not one but two non-budgets in the last month, the first of which wiped billions off the value of our pension savings, and the second secured political paralysis for the current government.”
The rival fund manager St James’s Place said its assets under management dropped by 3.3% compared with a year earlier, to £142bn, citing a “challenging external environment”. Overall, it benefited from net inflows of £2.2bn.
“Although we face an uncertain geopolitical and macroeconomic backdrop, the partnership remains critically placed to help clients plan, save and invest for the future, building confidence in their long-term finances,” the St James’s Place chief executive, Andrew Croft, said.
Meanwhile, the online investment firm AJ Bell said its assets under administration fell from £72.8bn to £69bn, with the losses on investments totalled £7.4bn over the period.
This article was amended on 21 October 2022 to show assets falling, rather than rising, in AJ Bell’s results, and to give £7.4bn (instead of £4.7bn) for losses on investments.