UK equity fund outflows pass £2.3bn record set after Brexit vote

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Funds channelling investment into UK companies suffered their worst month on record in January, with another bout of selling pushing total outflows past their previous high following the Brexit vote.

Data from Calastone, which tracks money entering and leaving funds from financial advisers, fund supermarkets and wealth managers, shows net sales of £795m for UK-focused equity funds in January — comfortably beating the previous monthly record of June 2020, when £673m flooded out.

The latest outflows mark eight consecutive months of losses, and bring the total amount withdrawn from UK equity funds during that period to £2.9bn.

Even in the nine months of selling that followed the UK’s vote to leave the European Union in 2016, outflows only reached a cumulative £2.3bn, according to Calastone.

Calastone said outflows took place every day apart from 3 January and were the result of a “buyer’s strike”, rather than an increase in selling activity among investors.

Data shows the total value of sell orders was broadly in line with expectations, while the value of buy orders was two-thirds of the average over the past year.

“The record outflow from UK equity funds is extreme in the context of the relatively benign stock market performance and what is going on elsewhere,” said Edward Glyn, head of global markets at Calastone.

“Looking at potential triggers, the Omicron wave, for example, is passing with much less disruption than in many other parts of the world. Political chaos in the UK may be colouring perceptions, but since this is not reflected in share prices, it is surprising that fund flows are taking a different course.”

Glyn added that even a rising interest rate environment, which saw the Bank of England hike the base rate from 0.1% to 0.25% in December, would have been unlikely to spook UK fund investors.

“UK equities are less sensitive to rising rates than markets like the US, whose big tech names have been clobbered by the inescapable maths that crimps their value when long-term interest rates go up.

“So it seems surprising that investors are so keen to ditch domestic holdings relative to those invested abroad.”

UK equity funds were not the only casualties in January. Asia-Pacific and European equity funds also posted an increase in outflows for the month, with redemptions of £77m and £85m respectively.

The majority of new money entering funds in January went into environmental, social and governance strategies. But with net sales of £541m, ESG inflows also fell to their lowest level in more than a year.

Meanwhile, fixed income funds pulled in £281m for the month. However, this figure was down from elevated levels seen in December and a sign of “steadily diminishing interest from investors” in the asset class, according to Calastone.

Source: Financial News

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