Investors shed £2.35bn of equity funds in the year to July
The last time the six month period to July was worse was in 2016 in the aftermath of the Brexit referendum and the US election campaign, according to the latest fund flow index from global fund network Calastone.
It said these outflows contrasted heavily with the £11.08bn inflows in the same period of 2021.
UK and European equity funds saw the worst outflows, with investors in UK-focused equity funds shedding £459m – around a fifth more than their European counterparts.
This means it is now the fourteenth consecutive month of net selling and year-to-date, UK investors have withdrawn £4.79bn from domestically-focused funds.
Meanwhile, investors redeemed a net £267m from European funds with a total £1.19bn withdrawn in the year to July.
Calastone said emerging markets “have been uncharacteristically resilient” as the sector recorded £36m of net inflows, taking the year-to-date total to £520m.
It added: “This is unusual in a bear market combined with rising US interest rates which are normally very negative for emerging markets, but it reflects the benefit many emerging economies have felt from high oil and commodity prices.”
Elsewhere, fixed income funds saw inflows of £307m as bond markets stages a recovery “that reflected the growing likelihood of global recession”.
And property funds also saw £35m of inflows in July – the second consecutive month of net buying after years of outflows.
Calastone also noted a “distinct revival of interest in absolute return funds” which aim to generate positive returns whether markets rise or fall.
Between 2018 and 2021, these funds were “firmly out of favour with investors”, suffering 36 months in a row of outflows. But in late 2021, outflows diminished sharply and have reversed the withdrawal trend with three months of inflows, as investors added a net £227m to their holdings.
Calastone stated: “The new-found net inflows have been driven by a marked increase in the volume and size of buy orders rather than a passive reduction in sell orders, indicating that this is an active decision to commit new capital to the sector.”
Expectation the markets will remain volatile
Edward Glyn, head of global markets at Calastone, said: “Investors want to see a clear direction for the economy both in the UK and around the world before they turn positive again on equity funds.
“The bond markets are already beginning to price in a recession as sharply higher central-bank rates join with high energy prices to turn the screws on demand. It’s too soon to call a trend, but the uptick in interest in fixed income funds in July may suggest fund investors are ‘buying’ the recession trade too.
“Meanwhile the return to favour of absolute return funds is a clear indication that some investors – the figures are small after all – expect markets to stay volatile and are choosing funds that can benefit. The perception that the UK faces uniquely difficult challenges is clear in investor behaviour. “Even after adjusting for the very large value of assets under management in UK-focused funds, the outflows are still exceptionally large. Investors want to see inflation come down, growth improve, trade disputes settled, and political gridlock broken before they are going to become enthusiastic buyers of UK assets again.”