Investors pull money out of UK fairness funds as FTSE 100 rises

Fresh record highs achieved by the FTSE 100 index have failed to stem the flow of cash fleeing UK equity funds. 

Outflows from UK-focused equity funds totalled £665million last month, taking the total amount of capital withdrawn to £21.3billion during thirty-five consecutive months of selling, according to Calastone’s latest Fund Flow Index. 

On Tuesday, the FTSE 100 closed at a record high of 8,313.67. The index has bounced back after a sluggish 2023, which was dampened by higher interest rates and economic uncertainty. 

UK outflows: Outflows from UK-focused equity funds totalled £665million last month, Calastone said

Within the last week, shares in major banks, including Barclays and Lloyds Banking Group, have fared well, rising over 3 per cent on Tuesday. 

According to Calastone’s latest analysis of data from April: ‘The relentless negativity on UK-focused equity funds was undiminished, despite the UK market reaching a record high’.

UK investors added a net £1.93billion to equity funds and £422million to fixed income funds in April, Calastone said. 

Over half of inflows to equity and fixed income funds took place in the first five days of April, just before the tax year ended. 

Data: Equity net fund flows since the first quarter of 2021

From the middle of February to the end of the tax year, UK investors poured £5.17billion into funds, which is over five times more than over the same period a year ago and the highest level since Calastone’s records began. 

US equities continue to be preferred by UK investors. Net inflows to North American equities reached £1.25billion in April, representing Calastone’s fourth best result on record. 

Global and European equities absorbed £1.49billion and £471million respectively last month. In fact, global funds had their best month since April 2023, when inflows into this category reached £1.59billion. 

Flows: Isa season equity net fund flows since 2019

Since January 2023, equity index fund, led by North American and Global funds, have taken in £14.92billion of investor cash, while active funds have shed £7.26billion. 

Index funds proved particularly popular last month, as they have done for the past 16 months, the findings added. 

Investor appetite for emerging market funds appeared to wane. According to Calastone, UK investors broke an 18-month run of inflows by selling a net £162million of their emerging market holdings. 

Money market funds also fell out of favour, enduring outflows of £100million in April. This marked the first month this asset class saw net selling take place since January 2023. 

Calastone, said: ‘Investors are switching outright from safe-haven money-market funds, despite ongoing high yields, into riskier asset classes. Property funds, which face cyclical and structural problems, saw continued outflows too.’

Edward Glyn, head of global markets at Calastone, added: ‘The 2024 bull run in equity markets flies in the face of the uncomfortably bearish signals coming from the bond markets. 

‘Inflation in the US, the UK and elsewhere remains obstinately above target and resistant to high interest rates – meaning they are going to stay high for longer. 

‘That is bad for asset prices of all kinds, and global equity markets faltered in April, falling almost four percent from the peak. 

‘Nevertheless, they remain close to the record high reached earlier in the month, leaving some markets, particularly the US, looking expensive. Investors seem undeterred.’