UK stock funds have recorded their 31st consecutive month and third straight year of net outflows as investors dumped struggling London-listed equities for European and US markets.
British investors poured £1.2bn into equity funds in December – by far the highest monthly inflows since April 2023 and the second-highest in more than two years – according to the latest data from global funds network Calastone’s Fund Flow Index.
However, volatile market conditions and economic uncertainty triggered net outflows of £1.2bn across equity funds in 2023 – marking the second straight year of outflows, albeit an improvement from -£6.3m in 2022.
UK-focused funds were the only ones to see net outflows and dragged down the total figure, with £8bn withdrawn in 2023 compared with inflows of £6.8bn across all other kinds of equity funds.
The £418m withdrawn from UK funds in December was well below the monthly average for 2023 of -£667m.
The money management industry is facing huge structural issues, such as the shift towards cheaper passive funds and so-called alternative assets.
Meanwhile, as interest rates have increased over the past year, investors have dumped underperforming UK equities in favour of cash.
Chancellor Jeremy Hunt reportedly held talks with top City chiefs on Tuesday as part of the government’s efforts to attract more listings to the London Stock Exchange.
Calastone’s figures showed investors more than doubled their stake in US equity funds last month, with net inflows soaring to a record £968m.
Europe saw a strong rebound, with net inflows of £476m – the second-best month on record. Investors had previously withdrawn capital from the sector every month since January 2022.
Low-risk money market funds boomed in 2023, taking in a record £4.4bn – more than the previous eight years combined.
“Money market funds are doing well for two reasons. First, they are a safe haven as they invest in very short-dated fixed income securities – such bonds redeem within weeks, so credit risk is minimal, and yields are high just now,” said Edward Glyn, head of global markets at Calastone.
“And secondly, the yield on money market funds is often well above what is available for cash on deposit at a bank, so they are drawing money away from the banking sector that might otherwise have idled in instant access savings.”
ESG funds saw £2.4bn of outflows in 2023, the first year of net withdrawals since flows started to boom in 2019.
Property funds also recorded a fifth consecutive year of outflows, shedding £601m as the sector continued to struggle with weak commercial tenant demand, high interest rates and steep finance costs.
“The negative trend is self-fuelling, as the poor performance of UK equities makes them appear less attractive to fund managers and retail investors, the reduction in liquidity reduces appetite from overseas investors, and reduced capitalisation impacts on index weightings,” said Charles Hall, head of research at investment bank Peel Hunt, in a note last week.
