An all-time high of £679m was pulled from UK equity funds in June and UK equity income funds also saw a record outflow of £671m.

This was the worst ever performance for UK equity funds, according to fund technology company, Calastone, beating outflows recorded in the referendum, Brexit, lead-up to the General Election and when markets were at their worst during the peak Covid-19 pandemic earlier in the year.

Investors pumped record amounts of money into equity funds in April and May, but as stock markets closed their best quarter in at least a decade in Q2, investors banked their gains in June.

Investors added £3.9bn to equity funds between April and the first week of May, but in June, they sold a net £1.2bn, banking profits made on the stock market rebound.

Calastone said active funds took the brunt of the impact, shedding £1.1bn, though passive funds saw “rare outflows” of £62m – the first month of outflow since October 2016.

Mixed asset funds which are favourites of pension and ISA savings plans, also saw outflows of £228m in June, only the second month Calastone has recorded this.

The Fund Flow Index revealed that most of the cash pulled out of equity funds was switched for the relative safety of fixed income and money market options. These saw inflows of £927m between them in June, split roughly equally.

‘Opportunistic trading’

Edward Glyn, head of global markets at Calastone, said: “In the middle of a global economic and health crisis of this ferocity there’s no doubt investors are banking the big gains they have made on the billions they have ploughed into the market since its lows in March. Almost all the trading signals across Calastone’s network pointed in the same direction in June – investors bailing out of riskier fund categories into safer ones, even affecting segments like index funds and mixed asset funds that almost never see outflows. In March, investors were reactive, getting caught out by the sudden market drop. Now they seem to be anticipating a significant renewed market correction – we will see in due course if that materialises.

“The very high transaction volumes we have seen all year testify to opportunistic trading – investors are currently unusually engaged with their holdings and unusually liable to switch from one fund to another, or to cash and back.”

Glyn added that the record outflows from UK funds seems to be explained by a combination of three factors.

“First, the economic news from the UK was especially bad in June, second a no-deal (or “Australia-style”) Brexit is increasingly likely, and third, the impact of dividend cuts is greater in the UK than in most other parts of the world. This third factor also explains the record outflow from income funds. This category has been out of favour for a long time, but with global dividends set to fall by a fifth or more this year according to Janus Henderson, there is less allure from equity income,” he said.