Their fans say active funds are the place to be during times of crisis or opportunity and it seems as though investors haven taken note.
The latest fund flow data from the Investment Association has revealed a huge £5.2billion worth of net retail sales into actively managed funds in December – the second highest inflow ofter the record month before.
November saw a record-breaking £5.4billion put into active funds. For 2020 as a whole, active funds attracted £12.4billion, compared to outflows of £8.1billion in 2019.
The resurgence of active funds comes after a lengthy period of time when sales were being put under pressure by the rising popularity of tracker funds.
November and December 2020 saw record breaking net retail sales for actively management funds of £5.4bn and £5.2bn respectively, according to the Investment Association
Net retail sales for the entire industry reached £31billion, three times as much the £10billion figure for 2019.
Meanwhile, new research also shows active funds are now outperforming passive funds after several years of underperformance.
According to wealth management firm Bowmore Wealth Group, actively-managed UK large-cap equity funds returned an average of 8.3 per cent over the past six months, compared with an average of 5.1 per cent for UK large-cap passive equity funds.
During the same period, the FTSE 100 returned 6.2 per cent.
The firm said greater exposure to value stocks may have helped active fund managers outperform in the second half of 2020.
The investing style, which is centred on buying shares trading below their book values, made a major comeback late in the year after having been out of favour since the last credit crunch.
Best-selling IA sectors in December 2020
The five best-selling Investment Association sectors for December 2020 were:
1. Global – £1.2billion
2. Mixed Investment 40-85% Shares – 3. £838million.
North America – £412million.
4. £ Corporate Bond – £396million.
5. Volatility Managed – £333million
Since the announcement of vaccine breakthroughs in November 2020, a recovery in the oil price fuelled share price rises for undervalued oil and gas companies.
Bank shares have also outperformed in recent months, contributing to a growing group of investors considering a rotation out of growth and into value, favouring active managers.
Charles Incledon, of Bowmore, said: ‘2020 was not the year to rely solely on passive funds. Not all active fund managers can beat the market, but the best active managers continually demonstrate that they can.
‘It’s vitally important to have those funds in your portfolio when markets are falling, as much of the outperformance tends to come from downside protection.
‘Times of turbulence are when conviction trades really matter. The pandemic has created a situation where there are significant winners and significant losers.
‘Tracking an entire market in this type of situation means you will benefit from the winners but will also suffer as a result of the losers. Therefore, now more than ever, being selective is vital.’
What did investors buy?
Meanwhile tracker funds brought in £926million worth of investment in December according to the latest IA statistics.
Equity funds were the best-selling, with net retail sales of £2.5billion, buoyed by strong net retail sales to Global equity funds of £1.5billion.
Responsible funds have only grown in popularity with a record £1.1billion of inflows for the month. Over 2020, inflows have amounted to £10billion, more than treble the £3.2billion amount seen in the previous year.
The UK’s total funds under management reached a record £1.4trillion by the end of 2020, after an extremely volatile year which saw the figure fall to as low as £1.1trillion at the end of March.
The IA’s CEO Chris Cummings said we have entered 2021 with ‘cautious optimism’
Other key findings include equity funds being the best-selling asset class for the year, with £10.4billion worth of inflows, boosted by strong sales in the second and fourth quarters of the year.
This is a significant reversal of 2019’s £2.9billion of net retail outflows.
Chris Cummings, chief executive of the Investment Association, said: ‘December saw a continuation of the strong net retail sales of November, with the fund market buoyed to a positive end-of-year position.
‘Growing positivity around coronavirus vaccines helped boost stock market performance in December which in turn fuelled investor appetite for stocks and shares funds, with investors placing £2.5billion into these funds throughout the month.
‘The fund market accumulated strong sales over 2020 and ends a tumultuous year with record funds under management.
‘Continued economic uncertainty, set against the progress made on a national vaccine roll-out, means we enter 2021 with cautious optimism.’
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