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Record UK equity fund outflows in April

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UK-focused equity funds saw record outflows of £836m in April as investors sought out safe havens amid the weak economic outlook.

Two thirds of UK-focused funds saw outflows, with those concentrating on mid-caps and smaller companies bearing the brunt of sell orders by nervous investors.

The latest fund flow index from global fund network, Calastone, revealed that fund outflows in the month just beat the previous record set in January 2022.

Further, out of £49bn invested in equities funds since January 2015, no new net capital has flowed into UK-focused funds.

However, the UK wasn’t the only region avoided by investors. North American equity funds saw their second highest outflows on record – £285m.

Those focused on Europe also experienced a sharp rise in redemptions month-on-month (up £168m). Of these funds, the technology sector saw its fifth consecutive month of net selling.

Meanwhile global funds achieved £1.58bn of inflows in April. Calastone said that on a standalone basis this looks very strong, but is likely a “correction of excessive negativity in March” which saw record selling to the tune of £977m.

Two thirds of the inflows (£1bn) were to global ESG equity funds “continuing the secular trend of new capital flowing into this burgeoning category”.

There have been no monthly outflows from ESG funds in over three years.

However, ESG aside, equity funds overall saw outflows of £245m which is the fourth consecutive month of outflows.

Elsewhere, equity income funds saw £200m of inflows which is the first time in two years, while bond funds also saw £610m added, showing that the preference for lower risk options was evident in fixed income funds”.

Inflation-linked bonds also proved popular, while those focused on riskier high yielding bonds saw almost no new net money.

Edward Glyn, head of global markets at Calastone, said: “Investors are wary. Everywhere we look, risk-off trades are dominating the picture.

“Outflows from UK-focused funds make sense at present given the weak economic outlook, but we were surprised at just how negative sentiment was. The flow of news on the UK economy has been relentlessly bad over the last few weeks as investors have absorbed the limited and heavily criticised set of measures announced by the chancellor to protect households from soaring inflation, while tax increases and an economic slowdown will only add to the pressure on household finances. This helps explain why outflows were so large.

“It is very telling that funds focused on smaller and mid-cap companies have borne the brunt of the selling – these companies are much more exposed to an economic downturn. A noticeable switch into UK-focused funds with an income focus is the flipside to this trend.

“Selling of technology funds and US equities are two sides of the same coin, given the dominance of the global technology giants on the US stock market – rising bond yields are a killer for highly valued tech companies. The sharp falls in tech share prices in recent months are making investors increasingly wary. Meanwhile outflows from European equities reflect the expectation of a European recession and persistent inflation in the region as war rages on its eastern borders.”

Glyn added that against this backdrop, income funds offer something of a safe haven for investors with patterns of trading suggesting there’s a switch taking place from growth to income which “makes sense in the current climate”.

He said: “The inflows to global funds might seem strange, but taken across March and April together, these funds have also seen outflows (as have UK, European and technology funds), and where there is interest in global funds, it has been heavily focused on ESG, which is well suited to a global approach and which is proving resilient even in times of significant investor nerves. Having only recently begun to join the mainstream, ESG funds are catching up on assets under management so they can enjoy inflows at the expense of more established categories in times of investor nerves.”

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