Tech, Greater China dominate global equity fund flows in 2020

As the pandemic hit the global economy last year, both wealth and asset managers have advised investors to be in sectors or markets that would likely benefit from the new stay-at-home economy.

Indeed, most of these sectors, especially technology, have outperformed the broader market and have provided investors with huge returns last year.

The MSCI ACWI Information Technology Index returned 44.07% in 2020, which compares with the 14.78% performance of the broader MSCI ACWI Index, according to data from FE Fundinfo.

The healthcare sector, particularly those that are adopting new technology, even had higher returns than the broader tech industry. The MSCI ACWI Health Care Technology performed 80.09% in 2020.

It is not surprising that funds that have exposure to these sectors have become hugely attractive to investors. Out of all equity funds offered globally (excluding ETFs, feeder funds and fund-of-funds), technology funds attracted the most money with around $65.7bn in net inflows in 2020, according to data from Morningstar Direct.

Their performance and huge inflows have also made their assets increase 78% to $370bn from $209bn in 2019, the data shows.

Healthcare funds also had sizable net flows of $17.7bn, with their AUM hitting $249bn in 2020 from $194bn in the previous year.

Another clear winner is the Greater China category. With China having a more positive outlook relative to the rest of the world, Greater China funds attracted $21.4bn from investors last year, making it the second most popular equity category globally.

Top five most popular equity categories globally in 2020 by net flows

ARE THE TRENDS LIKELY TO CONTINUE?

With the huge returns generated by certain sectors in the equity markets last year, investors have become concerned whether they can continue this outperformance this year, especially in technology, where valuations have become more expensive.

With a global recovery expected in 2021, some investors have rotated to sectors with more attractive valuations, says both asset and wealth managers.

A return to normal economic and social activities should boost revenues and profits among last year’s unfashionable sectors and lift lagging share prices, according to Ken Peng, head of Asia investment strategy at Citi Private Bank.

“Investors should exploit mean reversion,” he said recently.

That said, he said there are “unstoppable trends”, which include digitisation, longevity, new energy and Asian development.

Digitisation includes new technology infrastructure upgrades (especially 5G), satellite internet, autonomous vehicles, telemedicine and “smart cities”.

Echoing Peng, Stefan Hofer, Hong Kong-based managing director and chief investment strategist at LGT Bank Asia, believes that the best opportunities exist outside of the US whose markets have been driven by technology and new economy themes. He recommends overweight allocations to Europe and Japan, and his preferred sectors are healthcare, communication services, information technology and materials.

Meanwhile, China equities continues to be favoured by Deutsche Private Bank.

“Asia is moving ahead, anchored on China,” said Tuan Huynh, Deutsche PB’s chief investment officer for Europe and Asia.

Household savings reached 37% of disposable income last year, compared with 30-32% in each of the previous seven years, which should support consumption, while the urban unemployment rate has fallen to about 5% versus more than 6% in January last year, he said.

As of this writing, global technology, healthcare technology and China equity indices have continued to outperform the broader market on a year-to-date basis, according to data from FE Fundinfo.

FSA will be having the live event component of Spotlight On: Equities on 25 February, where our panel will discuss opportunities and risks in global equity markets as economic activity recovers in 2021. To find out more, click here.