Equity funds largely focused beyond the UK benefitted from the strongest inflows during 2018 while bond funds failed to draw much favour from investors, according to data from FE Analytics. 
After a relatively benign market environment in 2017, last year proved more challenging for investors as the US-China trade dispute and the Federal Reserve’s rate-hiking programme roiled markets.
Investors in the UK faced their own challenges as the Brexit saga droned on, clouding the outlook for the domestic market.
As such, heightened levels of uncertainty started to take its toll on the fund market with investors’ risk appetite diminished.
After the first 11 months of the year net retail sales stood at just over £9bn – according to the most recent data from the Investment Association – which would signal the third-worst year on record if there were no further inflows or outflows, significantly lower than 2017’s record inflows of £48.5bn.
Despite a sharp fall in net retail sales, however, some funds were able to grow during the course of 2018, whether through inflows or internal allocations of capital.
As such, FE Trustnet has decided to find out which funds got bigger last year.
Topping the table of funds that grew the most in 2018 is Terry Smith’s five FE Crown-rated Fundsmith Equity fund, after taking inflows of around £2.1bn and benefiting from positive performance of £209.2m.
Performance of fund vs sector & benchmark during 2018
Source: FE Analytics
FE Alpha Manager Smith made a total return of 2.2 per cent last year compared with a loss of 3.04 per cent for the MSCI World benchmark index and a fall of 5.72 per cent for its average IA Global peer.
Fundsmith Equity was one of six global equity funds that were among the 20 fastest-growing funds in 2018 while just four were focused on UK equities, which could suggest that investors are looking to spread their geographical risk.
Indeed, just under £3.9bn was invested in funds from the IA Global sector during the first 11 months of last year, according to the latest data from the Investment Association, compared with £12.8bn in outflows from the IA UK All Companies sector over the same period.
In addition, two US equity funds were also among the top 20 funds attracting the most money during 2018, including the top-performing Baillie Gifford American overseen by Gary Robinson, Helen Xiong, Tom Slater, and Kirsty Gibson. Growing by £754.4m, the now-£1.8bn growth-focused fund made a 13.34 per cent total return while the S&P 500 ended the year was up by just 0.96 per cent.
Source: FE Analytics
There are also a number of mixed asset strategies making the fastest growers list, including two from the popular Vanguard LifeStrategy range.
Other mixed asset funds at the top were two Quilter strategies – Quilter Investors Cirilium Balanced Portfolio and Quilter Investors Cirilium Moderate Portfolio – and one from the specialist sector: Baillie Gifford Multi Asset Growth.
As the table above shows, there were a significant number of passive strategies garnering the most money during 2018. Indeed, 10 of the top 20 fastest-growing funds were passive strategies – including the two Vanguard LifeStrategy funds.
Passive funds have seen greater flows in recent years as investors have sought out cheaper ways of riding the post-financial crisis equity bull market.
While UK equity strategies have fallen out of favour since the EU referendum there were a couple of well-known names on the list: LF Lindsell Train UK Equity and Liontrust Special Situations.
The five FE Crown-rated LF Lindsell Train UK Equity fund, managed by FE Alpha Manager Nick Train, is popular among investors and took £750.3m in new money during 2018, despite being impacted by negative performance.
Indeed, the fund recorded a loss of 1.09 per cent, although this was a significant outperformance of the FTSE All Share (down by 9.47 per cent) and the average IA UK All Companies peer, which lost 11.19 per cent.
The Liontrust Special Situations fund, which is run by FE Alpha Managers Anthony Cross and Julian Fosh and also holds five FE Crowns, captured inflows of £679.4m last year.
Like the Lindsell Train fund, however, Liontrust Special Situations was also down, falling by 2.12 per cent over the year.
There was a noticeable lack of bond funds among the fastest growing strategies of 2018 as investors became concerned that the 30-year bond bull market was drawing to a close.
There was just one representative from a recognised bond sector: iShares Overseas Government Bond Index, which a passive fund.
The other fixed income strategy was an IA Targeted Absolute Return member – BlackRock Absolute Return Bond – which took in £972.9m during 2018. The four FE Crown-rated, now £2.3bn fund is overseen by Ian Winship and Andreas Doerrenhaus. It made a loss of 1.61 per cent last year.
The other absolute return fund on the list is the four FE Crown-rated Threadneedle Dynamic Real Return fund, managed by the firm’s multi-asset head Toby Nangle. The fund targets a positive real rate of return above consumer price index inflation over the medium to long term and a positive return over a three-year time period, regardless of market conditions.
In all, six funds saw their assets boosted by more than £1bn last year with three of those growing by that amount in the second half of the year alone, as the below chart shows.
Source: FE Analytics
Aside from Fundsmith, two other funds grew by more than £1bn during the latter half of the year: Royal London Global Equity Diversified and L&G Global Developed Four Factor Scientific Beta Index.
The Royal London Global Equity Diversified is overseen by head of global equities Peter Rutter and aims for modest outperformance of the global equity index through a diversified portfolio of 175-225 holdings.
Index-tracking strategy L&G Global Developed Four Factor Scientific Beta Index, meanwhile, is a recently launched fund that targets capital growth and income through investment in a process encompassing four factors: volatility, value, momentum, high profitability/low investment.
Next week, FE Trustnet will look at the most sold funds from 2018.