Equity funds enjoyed one of their best months for two years in May, taking in £1.1bn of new capital, according to fund technology company, Calastone.

Net new capital into equity funds in April and May exceeded the previous 18 months’ worth of inflows combined, the firm said.

In contrast, money flooded out of these funds in February and March as the Covid-19 pandemic ravaged the global economy and shattered market confidence.

Notably, nearly all new inflows in May took place in the first week of the month.

By the time the first bank holiday weekend had ended, the mood was much more sober, and by the third week of the month, inflows had turned to outflows, before staging a modest recovery in the final few days.

Overall, active equity funds saw larger inflows (£581m) than passive funds (£493m) for only the third month in two years in May, though they also bore the brunt of the reversal of sentiment that took place during the middle of the month.

North American equity funds and global funds proved particularly popular with investors, while funds focused on UK equities saw inflows fall to their lowest level in more than six months.

European equity funds saw outflows surge to £376m, prompted by shock announcements of steep dividend cuts.

Edward Glyn, head of global markets at Calastone, said: “Those who bought funds in early April in record volumes took the opportunity to pick equities up on the cheap and have done well so far. The decision is more difficult following the rally.

“Investors are stuck between a rock and a hard place: interest rates – at or below zero across the developed world – are pushing savings out of cash, but stock market valuations look high in the face of the historic economic crisis prompted by the pandemic.

“This is driving a lot of buying and selling as the news cycle unfolds and investors try to work out what it means for asset prices – the uncertainty helps explain why overall trading volumes across our network have been so high this year.”