September’s record outflows trump the previous high set just last month – and by a fifth.

During the third quarter, the outflow reached £4.7bn, “comfortably more than in the whole of 2016”, according to data from global fund network Calastone.

It added 2016 was previously the worst year on its eight-year record but pales in comparison to totals reached in 2022 already.

ESG Equities suffer rare outflows

Meanwhile, for the first time in three and a half years, the “worldwide phenomenon” – ESG equites  – have suffered their first outflows.

The latest fund flow index revealed that in September, ESG equity funds shed a net £126m of cash, following £95m inflows in August which Calastone noted was the lowest since September 2019.

The only equity category to see inflows was specialist sector funds, especially those focused on infrastructure and renewables. Sector funds enjoyed inflows of £91m, taking the net total to £3.5bn over 23 consecutive months of inflows.

UK-focused equity funds hit hardest

Investors continued to punish UK equities with this sector seeing net selling of £694m, the sixteenth consecutive month of net outflows.

Calastone said this is a longer stretch than for any other major equity fund category. Until 2022, September’s outflow would have marked a record for UK-focused funds, but sentiment on UK assets has been so negative recently that it only ranked sixth.

However, every other geography saw significant outflows too. US equity funds had their worst month on record (beating August’s record outflow) shedding a net £497m of capital.

The extreme strength of the US dollar and the sharp economic slowdown in China drove a record £116m of net outflows from emerging market funds and £223m from Asia-Pacific – second only to August’s record.

While active equity funds had proven relatively resilient for most of 2022, the past two months have seen the sector hit with record net outflows of £1.89bn in September compared to £472m from passive funds.

Elsewhere, Calastone noted that the flight from risk was seen in other asset classes too. Property funds suffered £89m of outflows while mixed assets funds shed a record £740m.

Just yesterday three major asset managers imposed capped withdrawal limits on their property funds as property market volatility continues.

Meanwhile, inflows to fixed income funds slumped to £72m, turning sharply negative in the last week of the month, following the market’s savage reaction to the Chancellor’s mini Budget.

‘Dramatic repricing of assets’

Edward Glyn, head of global markets at Calastone, said: “The surge in global bond yields is driving a dramatic repricing of assets of all kinds. UK investors are voting with their feet and heading for the exits. The sensitivity to market interest rates of the big growth stocks that characterise the US market explains the record outflows there.

“For emerging markets, the support provided earlier in the year by high metals prices has been kicked away by the prospect of a global recession. The negative effects of the strong dollar for many emerging market economies are coming to the fore in its place. And the loss of momentum in China is leaching energy out of the Asia-Pacific economic ecosystem. Meanwhile, the near-permanently frosty attitude towards UK assets shows no signs of thawing.”

Glynn added that the resumption of selling in the property sector relates to the increased competitiveness of bond yields tempting income investors, concerns about occupancy levels in a possible recession and heightened refinancing risk linked to higher market interest rates.

“This has clearly been enough to offset the built-in inflation resilience of many property portfolios,” he said.