Figures from Calastone, the largest global funds network, show that despite record equity fund inflows of £27bn in 2024, investors pulled £9.56bn from UK-focused equity funds. This is the worst relative performance between UK funds and the rest of the sector on record.
Edward Glyn, head of global markets at Calastone, said that £45bn has been withdrawn from UK equity funds since 2015, adding that the funds are being “shunned by investors”.
“UK equity valuations are clearly cheap, but investors are capitulating, seemingly giving up hope that a long-awaited re-rating will occur,” he said.
US and passives shine
Passive funds were popular with investors, garnering £29.7bn of inflows, while North American funds saw nearly £12bn added to their holdings.
The amount committed to index trackers was more than the previous four years combined, while actively managed rivals saw outflows of £2.43bn. Money market funds also had their best year on record, with £1.86bn of inflows.
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Mixed asset funds, which include bonds and equities, enjoyed their best year since 2021, enjoying inflows of £14.6bn.
Meanwhile, weak bond markets from the summer saw a sharp fall in inflows to fixed income funds to £1.3bn. Funds invested in Asia-Pacific also remained unpopular, suffering the worst outflows on Calastone’s record.
Japanese equities bucked this trend, as investors added a record £1.59bn to the sector.
Glyn said that, despite volatile stock markets at the end of the year, December still provided a strong finish for 2024, with £2.91 added to equity funds in the final month of the year.
UK weakness shows no sign of abating
Around 70% of the world’s stock market capitalisation now resides in the US, with this year’s fund inflows showing no let-up in its popularity.
Investment experts say that, despite UK Chancellor Rachel Reeves’ plans to corral British pension money into UK equities, investors’ money will still find its way out of Britain into America.
“As long as the US stock market continues to motor ahead of other regions, money allocated to risk assets is likely to find its way across the pond,” said Laith Khalaf, head of investment analysis at DIY investment site AJ Bell.
He added that the trend towards passive investment, which allocates money to global stock markets in relation to their size, will also continue to siphon money from the UK.
“You can argue the toss about whether that’s a sound long-term investment strategy, but it’s simple, it’s cheap, and people understand it. What’s more, it’s delivered outstanding returns over the last 10 years,” he added.
A riskier year ahead
Glyn said that while December had remained strong, there is now “greater wariness” among investors, particularly in those markets such as the US where valuations have hit new highs.
“A correction in August and a wobbly December for global markets have reminded investors that risks abound,” he said, pointing to signals from the bond market, where yields have been pushed higher, as a sign of risk in the stock market.
He added: “Equities look more exposed, especially in those parts of the world where they have raced ahead.”
