Calastone: ‘hard to persuade anyone to hold UK funds’

UK equity funds saw March outflows soar to £823 million, their worst month since February 2023, making March the 34th consecutive month to see net selling, according to the latest Fund Flow Index (FFI) from Calastone.

The index shows the net inflow and outflow of capital to and from open-ended investment funds relative to the total value of units bought and sold in those funds.

“Q1 outflows of £2.13bn made for the fourth worst quarter for UK equity funds on Calastone’s record,” said Calastone. “Income funds, which are heavily weighted to the UK, also saw outflows continue.”

Calastone said the outflows from British funds came as UK investors continued their stampede into international equity funds in March.

UK investors added a net £2.3 billion to their holdings of international funds and ensured Q1 2024 was a record for equity fund inflows, totalling £6.97 billion since January.

North American funds were by far the biggest beneficiary, attracting £1.77 billion of new capital, taking the Q1 total to a record £5.72 billion, more than three times the previous best quarter in Q4 2020.

Calastone said that in the four months since December 2023, UK investors have allocated more money to North American equity funds than they have in the previous nine years combined (£6.69bn v £6.38bn).

Edward Glyn, head of global markets at Calastone, said: “Global equity markets have surged since the end of October. Japan, the US and Europe have led the charge, all up by more than a quarter and leaving the UK in the dust – the UK’s top 100 has eked out just 8.6% over the same period.

“UK equities are certainly cheap, but investors worry where the growth is going to come from to drive earnings higher.

“Add a relentless narrative of gloom about the prospects for the London stock market and it’s hard to persuade anyone to hold UK-focused funds.

“Meanwhile the US earnings recession is over – profits are once again on the up and that seems to be the main catalyst driving fund inflows and higher share prices.”

Global equity funds were the next most popular after North America in both March and the first quarter, with inflows of £1.22 billion and £3.3 billion for each respective period.

Emerging market equity funds came third in March, with inflows of £362 million. Europe ex-UK has had a strong run of inflows in recent months, but these dried up in March, falling more than 90% compared to the three-month average to just £37 million.