UK-focused funds bore the brunt of investor jitters in the month of June. But since the selling began in June 2021, £6.4bn has been pulled, according to the latest fund flow index from global fund network Calastone.

It said the outflows have been driven by a sharp drop in buying interest while sell orders have only increased slightly.

Global, European, emerging markets, technology funds and smaller companies all saw outflows too as investor sentiment was shaped by global markets entering bear status.

Overall, equity funds saw net outflows of £1.06bn, with total net outflows standing at £1.94bn so far in 2022.

And bond funds fared little better than equities, suffering £458m “as investors absorbed the falling bond prices that accompany higher market interest rates”, according to the network. See YourMoney.com’s The end of the 60/40 portfolio: Where now for asset allocation? for more information.

Mixed asset funds recorded outflows of £93m, only the second month since 2015 that Calastone has seen investors withdraw capital from the sector.

Calastone revealed passive funds also suffered their second-worst month on record in June, with outflows totalling £2.6bn since January. By contrast, active funds drew £633m of inflows.

It said much of this is driven by ESG equities, seeing inflows of £2.25bn year-to-date, with £292m added in June.

Income funds have also enjoyed their third consecutive month of inflows after years of steady selling as investors switched to defensive options in a bid to ride out the downturn in the market and the real economy.

Investors have also turned to property funds with £134m added to the sector in June. This breaks the record 44 months of outflows, and as such, June’s figure is the best month since June 2015.

Overall, across all asset types, net outflows were their second worst on record at £1.84bn. The only time outflows were larger was in March 2020, when fixed income markets stood on the brink of collapse in the face of lockdowns. This is significant as Calastone has only recorded five months in the last seven-and-a-half years when funds have seen overall outflows.

‘Bear market shreds investor sentiment’

Edward Glyn, head of global markets at Calastone, said: “Signs of optimism are scarce as the bear market shreds investor sentiment. UK stocks are however not in bear territory, yet investors are selling out of UK-focused funds more heavily than any other category. This reflects the home-market bias in UK investor portfolios. A reduction in appetite to hold equities will inevitably hit UK-focused funds harder. There might be some bottom-fishing going on too, with some switching from recently outperforming UK equities to very hard-hit North American ones – we noted North American funds saw buying in June.

“The greater outflows from passive funds than active ones, even after ESG is taken into account, are especially stark given that passive funds are a smaller category by assets under management. In falling markets, active funds tend to have more opportunities to outperform and this may be driving behaviour.”

Glyn added that there is some switching going on too. “Equity income funds are clear beneficiaries. In an inflationary, rising-interest-rate environment, income-generating assets are a lower risk option because more of their value is derived from near-term cash flows rather than distant expectations of future profits.

“The reappraisal of property is part of the same trend. Rental income is a bit bond-like because commercial tenants tend to have relatively long leases and will look to cut other costs before facing the upheaval of a move.”