Funds available for sale in Hong Kong or Singapore recorded $53bn of net inflows for the full year of 2020, compared with $62.6 billion the previous year, Morningstar Direct data shows.
Equity mutual funds, including locally domiciled and cross-border open-ended funds, saw a sharp rise in demand during the last three months of the year, attracting net inflows of $32bn to swell the final total to $48bn.
The turnaround in sentiment was abrupt, with a separate report by Boston-based Cerulli Associates (which used Morningstar Direct data) recording net outflows of $1.6bn from equity funds available in Hong Kong to the end of November.
Indeed, the Cerulli report found that “low-risk products emerged as the mainstay for most of 2020, as investors stayed averse [to buying] risk assets”, including money market funds (MMFs).
The late charge was led by technology, China A-shares and large cap growth funds, as investors’ confidence returned as they looked beyond the devastation to global economies caused by the coronavirus pandemic.
“Investors’ enthusiasm towards the technology and ‘new economy’ sectors contributed to strong inflows into technology and growth-style funds,” said Wing Chan, Morningstar’s director of manager research Practice, EMEA & Asia, in a statement.
“At the same time, China A-share funds also experienced record inflows as investors took advantage of the stabilisation in Chinese economic growth and the abundance of alpha opportunities on offer,” he said.
Technology funds received net inflows of $16.6bn during the year, China A-share products attracted $10bn and global large-cap growth funds garnered $9.7bn. The average fund return for each sector in 2020 was 52.5%, 50.3% and 24.8% respectively, according to Morningstar Direct.
Big winners for investors’ affections were the Allianz China A Shares Fund which attracted $6bn in new flows and the Morgan Stanley INVF Global Opportunity Fund (with a large-cap growth mandate) which gathered $5bn of new money.
Among other asset classes, allocation (also called mixed-asset or balanced) funds suffered net outflows of $8.9bn, and made up two of the least popular Morningstar categories during the year.
The appeal of fixed income funds varied. The sector as a whole attracted net inflows of $22.7bn during the year, but while global corporate bond and diversified bonds funds, which offered reasonable income yield saw net inflows, flexible bond funds with large exposures to low yielding government securities suffered net withdrawals, Morningstar Direct data shows.
The Pimco Global Investment Grade Credit Fund and the JP Morgan Income Fund appeared brightly on investors’ radar, attracting $5.5bn and $5.4bn respectively in net inflows, according to Morningstar Direct.
“Global central banks’ commitment to keep interest rates low and the return of quantitative easing mean that investors’ demand for income is likely to continue despite unattractive yields from developed fixed income markets,” said Chan.
Net flows by key asset class
| Asset Class | Net Assets ($bn) Dec 2020 | 2020 Average Return (in $) | 2020 Net Flows ($bn) | Q4 Net Flows ($bn) |
| Allocation | 202.3 | 11.33% | -22.8 | -8.9 |
| Equity | 1034.8 | 8.17% | 48.0 | 32.6 |
| Fixed Income | 809.8 | 3.42% | 22.7 | 8.0 |
Net flows by Morningstar categories
| Morningstar Fund Category | Net Assets ($bn) Dec 2020 | 2020 Average Return (in $) | 2020 Net Flows ($bn) | Q4 Net Flows ($bn) |
| The Leaders | ||||
| Sector Equity Technology | 63.0 | 52.49% | 16.6 | 4.3 |
| China Equity – A Shares | 25.8 | 50.26% | 10.0 | 4.9 |
| Global Large-Cap Growth Equity | 52.5 | 24.83% | 9.7 | 4.4 |
| Global Corporate Bond – USD Hedged | 43.3 | 8.57% | 9.5 | 0.6 |
| USD Diversified Bond | 22.0 | 7.98% | 5.4 | -0.1 |
| The Laggards | ||||
| Global Flexible Bond – USD Hedged | 127.0 | 4.41% | -11.5 | -2.6 |
| Global Flexible Bond | 19.0 | 4.04% | -10.2 | -1.4 |
| USD Moderate Allocation | 60.5 | 8.70% | -8.8 | -5.5 |
| EUR Moderate Allocation – Global | 34.4 | 14.69% | -7.4 | -1.3 |
| Global Emerging Markets Bond – Local Currency | 22.8 | 1.87% | -5.8 | -0.1 |
ASIA MUTUAL FUND TRENDS
Divergent tendencies were evident in Asian local markets for most of the year, the Cerulli report noted.
MMFs attracted most net new flows in South Korea ($43.3bn) and Taiwan ($7.1bn) between January and November, and Hong Kong and Singapore also saw net inflows.
However, China’s apparent early recovery from the pandemic encouraged strong flows into balanced (allocation) funds as well as equity funds during the second and third quarters, while other regional markets saw net outflows “due to profit-taking following the rebound in indices after the market mayhem in early 2020”.
As for the fixed income category, India had the next highest net flows to bond funds after China, as investors fled to the safety of higher quality corporate bond funds as well as banking and public sector undertaking funds.
Bond funds formed the second-best category for attracting net flows in China, Taiwan, and Singapore. On the other hand, Korea and Hong Kong saw net outflows from these funds, according to Cerulli.
The common trend throughout the region was the increasing popularity of thematic funds, which was also clearly identified by the Morningstar Direct report.
Among discrete sector products, technology and healthcare themed funds topped the net new flows chart between January and November.
“Amid the Covid-19 pandemic, long-term structural themes or megatrends such as technological innovation, healthcare, and sustainable investing have gained momentum,” said Cerulli.
However, their popularity may well not be based on long-term conviction.
“Sectoral funds are often used as short-term bets by investors, and hence, thematic investing could be prone to market risks in the short-run due to investors’ behaviour, in the event of fluctuating trends in markets,” said Leena Dagade, associate director with Cerulli.
