Thursday, June 6, 2024 at 8:00 a.m
Flows into equity funds slowed in May after a strong ISA season, new data has shown, with investors paying for UK stocks after a record FTSE 100 rise.
Total equity fund inflows more than halved last month to £775m – two-thirds lower than the January average in April and their lowest level since November 2023, according to the latest index of Calastone’s cash flow.
It marked a sharp cooling in investor appetite after a strong start to 2024 that saw record inflows of £8.9bn. Last month’s decline was mainly due to increased outflows from UK-focused funds and lower inflows to North American funds.
Profit-taking after London’s recent market rally saw £1.11bn of outflows from UK funds. This was the worst net sale since June 2022 and the second worst in Calastone’s nearly 10-year record. Actively managed UK funds bore the bulk of investor withdrawals, with £792m in outflows.
The FTSE 100 posted seven record closing prices in May, boosted by growing optimism over interest rate cuts, although the blue-chip index retreated later in the month.
The outflows from UK funds will worry policymakers and regulators as they seek to encourage more money into the London stock market. Injecting more life into the country’s capital markets has become a key feature of the two main parties in the City field ahead of the July 4 general election.
“We often see fund inflows taper off from mid-April after the end of the ISA season, but this year the decline has been more pronounced than usual,” said Edward Glyn, head of global markets at Calastone.
“The prospect of interest rate cuts in the US and the UK has receded, with only the ECB likely to move in the short term. Bond yields are once again nearing the post-financial crisis highs reached in late 2023, driving down bond prices as they rise.”
In contrast to the UK, investors remained positive on North American equity funds. Despite the continued slowdown since a peak in February, investors still injected £826m in May – six times the long-term average.
Global funds also performed well, adding £1.44 billion in their fifth best month on record. European equities attracted healthy net inflows of £462m.
Fixed income funds saw their second worst month of net outflows on record at £643m – a drop not seen since the Covid-19 pandemic hit in March 2020. Meanwhile, safe-haven market funds the money absorbed £134 million.
After a brief positive period driven by the ISA season, mixed asset funds saw outflows of £531m in May. These funds have had outflows in twelve of the past thirteen months, reaching a net £7.9 billion.
Glyn added: “The recent record UK share market gains are welcome news for UK investors, who remain structurally overweight their home market, even after 36 consecutive months of outflows of £22.4bn .
“While buoyant markets typically attract new capital, many investors appear to have chosen the UK rally as an opportunity to pounce rather than a moment to reassess the UK’s outlook.”
