UK funds lose £14bn as investors go international

UK investors continued to shun UK-focused stock funds in April with outflows accelerating to £782 million, according to the latest Fund Flow Index from Calastone, the largest global funds network.

This marked the 23rd consecutive month of net selling of UK funds, with outflows totalling £13.86 billion since June 2021.

Calastone said the big switch out of UK funds has been matched almost exactly by buying of internationally-focused equity funds over the same period.

Since June 2021, internationally focused funds have enjoyed inflows of £13.93 billion.

The continued move out of UK funds came despite UK investors buying stock funds in April at the fastest pace since May 2021.

Investors added a net £1.41 billion in new capital to their holdings during the month.

Global funds remained top of the preference list, with net inflows to this sector at £1.58 billion during the month, the fourth highest on record.

Emerging markets are also strongly in favour. Net inflows to emerging markets of £364 million in April were the third highest on record.

The most notable turnaround was in North American equities which came despite the serious cracks in the US banking system. Inflows of £253 million in April for North American equity funds followed outflows of £2.08 billion over the previous nine months, during which nearly every month saw net selling.

Asia-focused funds also enjoyed inflows.

Meanwhile, outflows from European equity funds shrank to their lowest since March 2022 when the bear market began taking hold in earnest.

The strong net buying of equity funds in April came despite a big month-on-month drop in trading activity overall.

The total value of buy orders plus sell orders — known as turnover — fell 19.5% month-on-month from £24.9 billion to £20 billion.

“In March investors were rushing to use up their capital gains tax allowance as this has now halved for the new tax year and this drove turnover up,” said Calastone.

Among other assets classes, money market funds attracted 10 times more capital than their long run average in April with an inflow of £333 million, taking the year-to-date total to £806 million.

“The surge in buying of money market funds reflects investor interest in the high yields they are offering at present as well as diversification of cash deposits by savers with deposits above the insurance threshold,” said said Calastone.

“Concerns over the health of the global banking system are behind this move.

“Inflows to bond and mixed asset funds were in line with the long-run average. Property funds suffered further outflows.

“March and April 2023 have marked the first time in a year that investors have switched from funds with lower risk ratings to those in higher risk categories.”

Edward Glyn, head of global markets at Calastone said: “Capital markets largely traded sideways in April after a strong March  – yet fund flows show risk appetite is on the rise.

“Inflows to equity funds have surged as a result. Global funds are typically the first go-to for new cash.

“Meanwhile, the sharp turnaround in interest in North American and specialist tech funds reflects the strong response of growth-company share prices to falling long-term bond rates.

“Emerging markets hold a number of attractions at present.

“They tend to benefit when the dollar weakens; valuations are low relative to developed-market counterparts; investors are under-allocated to them; and the rate-tightening cycle is ending sooner in emerging countries that took swifter action against inflation.

“The horizon is not unclouded however.

“Company profits are under pressure and there remains a lot of uncertainty over the likelihood and severity of any potential economic downturn.

“The resurgent optimism is therefore rather fragile. Indeed, markets plunged at the beginning of May as US banking failures continued.”