“We should brace for further volatility in fund flows for UK equities”, warns Edward Glyn, head of global markets at Calastone, when discussing the UK equities market which suffered heavy selling from investors “spooked by the multiple crises” in the UK last month.
According to the latest fund flow index from Calastone, investors sold down a net £567 million during the month of September, the second-worst month for UK equity funds on the Calastone FFI’s seven-year record.
Active UK-focused equity funds bore the brunt of the September selling, accounting for 98 per cent of the overall outflow from UK-focused funds during the month.
September 2021 stood out because investors clearly singled out UK-focused equity funds, Calastone says. This contrasted with the situation in June 2020, the worst month on record, as investors at that time sold heavily across almost all equity categories in order to take profits after the sharp increase in global markets sparked by huge stimulus from central banks.
Passive funds, usually cemented in regular savings plans, saw much less volatile trading, with ESG funds investing in the UK continuing to enjoy modest inflows in September.
Other categories also continued to enjoy healthy inflows, including emerging market funds, global funds, North American funds and “relatively unloved” European equity funds.
Emerging market funds saw record inflows of £407 million, with investors investing £850 million of new inflows into global funds (lower than in recent months but ahead of the long-run average) and £230 million into North American funds. European equity funds added a modest £37m during the month, Calastone outlines.
The global funds network also highlights the “bearishness” which saw UK-focused funds' overall inflows dragged to the lowest level since January (£450 million in September).
Calastone’s Glyn concludes: “The petrol panic, soaring inflation, empty supermarket shelves, fractured supply chains, crippling staff shortages and turmoil in gas and electricity markets are all taking their toll on investor confidence.
He adds: “With so much going wrong so quickly, investors have voted with their feet and dumped UK assets. Investors know that other parts of the world are also experiencing some of these difficulties, but inflows to funds focused on other regions emphasise that they realise the problems are more widespread and more acute in the UK than elsewhere.”
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