UK buyers pour money into US equities, IA information exhibits

British investors continued to take out large sums of money tied up in UK equity funds and ‘responsible investments’ last month, new data reveals. 

The ‘worst-selling’ sector in March was UK All Companies, which experienced outflows of £887million, according to the Investment Association (IA). 

UK funds saw net retail outflows of £1.3billion last month, the findings published on Thursday added. 

Meanwhile, inflows into US equities in the first quarter jumped to £1.5billion, more than double the level seen by the same point a year ago, according to the figures. 

The IA said: ‘This has been driven by the dominance of the Magnificent Seven and advisers and wealth managers choosing US stocks if they re-allocate into equities.’

The popularity of responsible investment funds appeared to wane, with net retail outflows of £329million in March.

Amid sizeable outflows, responsible investment funds under management stood at £106billion at the end of March, meaning their overall share of industry funds under management was 7.2 per cent, the IA said. 

Equity funds saw modest inflows in March, with US equity funds proving popular with British retail investors. 

UK investors returning to the fund markets in March resulted in inflows to the tune of £446million. 

Miranda Seath, a director at the IA, said: ‘Inflationary pressures eased towards the end of 2023, and alongside expectations of interest rate cuts, this resulted in a more optimistic outlook among investors. 

‘Whilst inflation continues to fall, expectations of rate cuts have been scaled back quite dramatically in April, following recent data that suggests inflation will take longer to fall back to target levels. 

‘It remains to be seen how investors will react to this, which coincides with continued geopolitical tensions.’

The data suggests global funds were the best-selling sector in March, with inflows totalling £842million. 

Fixed income funds also saw significant inflows in the month, with £809million invested. 

But the IA added: ‘However, data also showed allocations to fixed income are starting to plateau as investors anticipate a cut to rates in 2024 and other asset classes begin to regain both popularity and strength.’

Tracker funds maintained steady inflows of £2.9billion, up £800million from February, where the sum stood at £2.1billion.

Seath added: ‘Markets have not yet wobbled at escalating geo-political tensions and there are growing signs of investor confidence boosted by sales bump as investors look to top up their Isa allowances before the end of the tax year. 

‘As equity performance improves, particularly in the US we have seen funds under management rise: it is up 3 per cent in Q1 and 11 per cent from the recent low at the end of October.

‘North America equity funds performed particularly strongly in the first quarter of the year with high inflows of £1.5billion born out of stronger growth rates in the US. 

‘The dominance of the Magnificent Seven stocks, as well as the Federal Reserve’s monetary policy decisions helping to tame inflation, which has fallen faster in the US than in the UK and Europe.’

Laith Khalaf, head of investment analysis at AJ Bell, said: ‘March is one of the two big months of the Isa season, and it was relatively benign for retail fund flows, but not barnstorming by any stretch of the imagination. 

‘Retail investors put a net £446million into funds, but that follows withdrawals of £3.8billion across January and February. 

‘Fund managers will be hoping this is the start of some green shoots of recovery for the industry, but it could simply be a blip caused by increased activity at the end of the tax year and some renewed buoyancy in the global stock market.

‘Indeed it’s notable US equity funds did a lot of the heavy lifting in the first quarter, as investors cast aside concerns over the concentration risk and relatively high valuations of the Magnificent Seven.’