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Investors flock to safety and yield, as equity outflows ramp up

Paloma Kubiak
Written By:
Paloma Kubiak
Posted:
Updated:
06/07/2023

More than £660m was pulled from equity funds in June as investors flocked to fixed income and money markets for their high yields and relative safe haven status.

The asset allocation switch saw £662m withdrawn from equity funds in the month – the largest outflow since the mini Budget mayhem in September 2022. In May equity fund outflows stood at £302m.

This was followed by £384m outflows from mixed assets and £79m from property funds.

According to the data from global fund network Calastone, June was one of the top 10 worst months for equity outflows on its record.

Delving into the data, UK equities suffered outflows of £612m which is the 25th consecutive month of net-selling. Investors also offloaded £542m net of North American equity funds.

Equity income funds recorded a £324m decrease and recorded their worst month since September 2021.

Flight to safety and global appeal

Meanwhile, investors plumped for fixed income (£880m), while money markets attracted £503m inflows.

For money market funds, this is the second-best month on record after March 2020 when markets seized at the onset of the Covid pandemic.

Calastone also noted that buying activity outweighed selling activity by 2.3 to one, “indicating a very high level of conviction by investors”.

Global equity funds continued to attract new capital, as emerging markets also enjoyed strong inflows.

Edward Glyn, head of global markets at Calastone, said global equity funds have seen inflows of £50bn since 2015, which has been funded by sales of UK, European and income funds, as well as newly saved capital.

He added that emerging markets have enjoyed their best six-month run of inflows on record (£1.6bn) “as investors leap on relatively low valuations, on the benefits to emerging markets of a weakening US dollar and of the impending turn in the credit cycle”.

However, ESG funds saw outflows accelerate to £369m in June, after a “very bearish May”. Calastone revealed this is the worst month on record for the sector. And only the third to see outflows since the ESG boom began almost four years ago.

On the flip side, the small specialist technology sector had its best month since December 2021 with net inflows of £50m, curbing the outflows recorded over several months until early 2023 when stock prices, particularly in the US and those working on AI began to surge.

‘Recession fears are stalking equity and property markets’

In total over the past 12 months, there has been a strong switch away from equities towards fixed income, with £3.65bn pulled while £7.29bn has been pumped into this sector. Money market funds have swelled to £2.44bn, with June’s figures continuing the trend of a “flight to safety”.

Edward Glyn, head of global markets at Calastone, said: “Fixed income funds and their money market cousins have not looked so attractive since before the global financial crisis. At the same time, recession fears are stalking equity and property markets – investors are nervous.

“The result is a flight to safety. Money markets currently enable investors to earn an income of 5% or more at very low risk, while fixed income funds, which invest in longer-dated bonds than money market ones, offer the chance to lock into the highest yields in years. They now offer both income today and the prospect of capital gains when the credit cycle turns and market interest rates fall back.”