Woodford drives second record month for UK equity income

The IMA UK equity income sector saw the highest sales of any other fund sector for the second month in a row in July, driven by flows into Neil Woodford's new fund, CF Woodford Equity Income.

According to Investment Management Association (IMA) statistics, private investors poured more than £1 billion into the UK equity income sector last month, accounting for over half of all fund sales across the IMA universe, which totalled £1.9 billion.

This follows record-breaking inflows into UK equity income funds in June, when the sector took nearly £1.4 billion following the launch of CF Woodford Equity Income early in the month.

Laith Khalaf, senior analyst at Hargreaves Lansdown, believes that July's sales are also likely to have been driven by flows into the veteran manager's new fund as investors continue to defect from his former Invesco Perpetual funds.

Ripple effect

"Last month we saw the Woodford effect propel UK Equity Income to the top of the sales charts and we suspect this month we are seeing a ripple of that effect.

"Coupon-clipping investors in the Invesco Perpetual High Income fund may have stayed for the ex-dividend date on 1 July then switched across to Woodford's new fund. Indeed, it is notable that the worst-selling sector in July was UK all companies, in which Invesco Perpetual High Income now sits," says Khalaf.

According to data from FE Analytics, CF Woodford Equity Income has returned 1.83% since its launch on 2 June, making it the third best performing fund in the UK equity income sector, which has lost an average of 0.54% over the same period.

As Khalaf highlights, the sector with the largest outflows in July was UK all companies which shed £230 million during the month, although this was significantly less than the £421 million the sector lost in June.

The second bestselling IMA sector in July was property, which gained £306 million, slightly down on the £316 million the sector took in June, while strategic bond funds registered over £1 million more in sales in July than June, with inflows of £274 million.

Strategic bond funds remain a shining light in fixed income as almost all other fixed income sectors registered outflows in July, including sterling corporate bond, sterling high yield and global bonds which shed £48 million, £95 million and £97 million respectively.

Tracker fund popularity

Tracker funds registered their highest sales ever as private investors poured £513 million into passive vehicles in July, which Khalaf believes is due to a renewed focus on costs and performance.

"We expect the UK market to gradually polarise into low-cost passive funds on one hand, and active managers with a proven track record on the other. The middle ground hitherto inhabited by the closet tracker is being eroded, as investors become savvier and demand outperformance from their active managers," says the analyst.

The UK was the bestselling region thanks to flows into UK equity income; however, Asia registered its highest level of sales since January 2013 at £203 million as Asian and emerging markets continue to outperform developed markets year to date.

In contrast, Europe was the worst-selling region in July with outflows of £48 million, closely followed by North America with losses of £30 million during the period, as concerns over slow economic growth in the former and spiralling equity valuations in the latter drove investors away.