Vaccine spurs huge inflows to equity funds as investors ditch money markets for riskier assets

Flows

Near-record amounts of new capital flooded into equity funds in November, as investor confidence was restored by the announcement of three safe and effective vaccines against Covid-19, according to the latest Fund Flow Index from global funds network Calastone.

Investors added a net GBP2.3 billion to equity funds, the second highest month of inflows on record after April 2020, when economic and financial support packages from governments and central banks helped spur a resurgence in global markets.

In November, active funds enjoyed their best month in five years, with record GBP1.5 billion inflows to active global funds and GBP820 million inflows into ESG equity funds. ESG equity funds garnered higher inflows over the month than the total amount raised during the five years to January 2020. 

Edward Glyn, Calastone’s head of global markets, comments: “The long-awaited vaccine news could scarcely have been any better.” 

“Record fund turnover, record inflows for some of the biggest equity fund categories, and near-record inflows for equity funds overall, add up to a huge sigh of relief that the end may finally be in sight for the pandemic and its devastation of the global economy.”

Daily trading data shows that vaccine news was the turning point in markets. Equity funds suffered outflows of GBP389 million in the five days before the Pfizer/BioNTech announcement, which was more than made up for as GBP1.4 billion flowed into the funds in the five days following the news. 

Investors poured another GBP897 million into equity funds in the five days following the Moderna announcement, and another GBP429 million after the Oxford/Astrazeneca news.

Alongside large inflows, there was also record turnover in equity funds, suggesting high levels of switching between funds. Investors placed buy and sell orders totalling GBP24 billion, a record turnover month that was only exceeded by March, during the Covid-19 crash.

Appetite for risk also increased sharply, with investors adding more capital to the riskiest categories of funds than for almost three years, while withdrawals from the lowest risk categories were the third highest ever.

“A big switch from safe-haven to riskier assets is all part of this excitement. Active fund managers will also celebrate such a successful month after enduring months of outflows. Anchored in monthly savings plans, index-tracking fund flows tend to be steady and positive, but active funds benefit much more when there is a big positive swing in sentiment,” says Glyn.

Safe-haven money market funds saw their biggest outflows on record in November, gathering pace on news of a vaccine. Investors sold GBP695 million of units with sell orders worth three times as much as buy orders. Real estate funds, now reopened for business, continued to suffer significant outflows. Fixed income funds continued to enjoy inflows.

UK-focused equity funds and income funds were the only major equity fund category to see outflows in November, losing GBP222 million and GBP465 million respectively.