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UK-focused equity funds battered by Brexit and Covid fears

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Investors continue to shun UK-focused equity funds as the ongoing Brexit tensions, rise in coronavirus cases and second lockdown saw their fourth worst month of outflows on record.

The latest Fund Flow Index from global fund network, Calastone, revealed outflows from UK-focused equity funds in October totalled £358m.

This is the fifth consecutive month of outflows and October marks the fourth-worst month on record for the category.

Income funds which are also disproportionately invested in UK equities also suffered their worst ever month as £763m left the sector.

European equity funds also suffered outflows but at a more modest £69m while funds focused on North American and Asia benefited from new capital.

The big winners for the month were again ESG funds and index funds which saw inflows of £542m and £378m of new capital. In contrast, active funds shed £460m.

Calastone also noted that bond funds benefited from the caution shown by UK investors on equities, experiencing their best month since November 2019 with £716m of inflows. This figure was boosted in part by the rapid growth in ESG bond investing.

Meanwhile, property funds suffered big outflows as suspensions were lifted – £336m – their third worst month on record.

‘Covid and Brexit uniquely damaging for Britain’

Edward Glyn, head of global markets at Calastone said: “Investors voted with their feet in October, both as they anticipated the second round of lockdowns being imposed across England and Wales and watched as Brexit brinkmanship from the EU and the UK dramatically increased the risk of a no-deal crash out when the UK’s departure transition period ends this year.

“The fact that UK-focused funds are suffering so much more than their European counterparts, despite the pandemic inflicting lockdowns equally severe in many parts of the continent, suggests that investors view the double whammy of Covid-19 and Brexit as uniquely damaging for Britain.

“Global markets have been nervy in the last couple of weeks as concerns over the global economy have grown, but investors have not shown the same fear they did in March at the resurgent pandemic. Property funds have suffered a significant knock however, as many of them have just lifted their suspensions on trading, thereby facilitating pent-up demand for redemptions to take place.”

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