Volatility and market turmoil amid rising inflation, interest rates and the short-lived ‘Trussonomics’ were key themes in 2022.

Amid the uncertainty, equity funds were the hardest hit, suffering £6.29bn outflows over the course of the year, according to data from global fund network Calastone.

It revealed that within this diverse asset class, some fund sectors were punished more by investors, particularly UK-focused funds which saw record outflows of £8.38bn.

Every month saw net selling continue, while 2022 was also the second year in a row of outflows for UK-focused funds.

Investors dumped £2.65bn of European funds, a record £1.17bn of North American funds (the first year of outflows since 2016) and £1bn of Asia-Pacific funds.

It was also a bad year for passive equity funds, which saw their first year of outflows on Calastone’s record. For the second year in a row they fared worse than their active counterparts. Last year, passive funds shed £4.45bn, while active ones saw much smaller outflows of £1.82bn, despite being far larger by assets under management.

Mixed asset funds had their worst year on Calastone’s record attracting inflows of £1.16bn, while property funds saw outflows shrink by three quarters to £535m.

Meanwhile, global funds enjoyed inflows on account of the popularity of ESG, attracting £6.35bn.

Emerging market funds enjoyed inflows of £647m, while equity income funds had their best year on Calastone’s record, “reflecting their defensive qualities in times of recession and higher interest rates”, it noted.

Investors also turned their attention to fixed income with inflows of £2.89bn, but this is “sharply lower” than the £7bn inflow in 2021 “when rock bottom interest rates pushed bond prices higher”.

Calastone noted: “Investors were most positive on fixed income in the fourth quarter, adding a net £1.67bn. By this time, yields were significantly higher than at the beginning of the year (thanks to falling prices) so new investor capital into these funds will receive more interest income than at any point in the last 14 years. The inflows also indicate that investors have begun to anticipate an end to the rate-hike cycle and so positioned themselves for a potential bond-market rally.”

Investors seek refuge in safe havens

Edward Glyn, head of global markets at Calastone, said: “2022 was a momentous year. The sudden flip by central banks from floods of liquidity and cheap money to a barrage of rate hikes aimed at taming rampant inflation turned asset markets upside down.

“There is a structural bias in the market towards fund inflows as we put money aside in our pensions and ISAs/savings plans, so such large outflows from equity funds in 2022 without a corresponding increase in other asset classes is a very large vote of no-confidence. Investors have sought out the safest havens they can find, taking refuge in cash and the perceived lower risk fund categories.”

Glyn said sentiment has improved markedly in recent weeks, but there is enormous uncertainty over the future course of interest rates and economic growth around the world.

“The expectation that the UK economy will suffer the worst recession among major economies has prevented the current burst of optimism spreading to UK-focused funds, however.

“It’s tough for the industry. Fund management groups were hit with a double whammy – the supply of capital shrank as bond and equity markets fell, and the replenishment rate either reduced or went into reverse as investors either slowed their buying or fled for the safety of cash.

“The resulting reduction in assets under management brought a significant hit to revenue. Nevertheless, with more of the pain focused on outflows from index funds, whose fees are lower, there is a trace of silver in the lining for active fund houses.”