Investors Abandon UK And Passives In Favour Of Global Funds

Investors in funds exposed to stocks and shares dumped holdings worth more than £6 billion last year, according to the latest buying and selling data from global funds network Calastone, Andrew Michael writes.

The company’s Fund Flow Index showed that, overall, equity funds leaked £6.29 billion during 2022, the worst figure in eight years. Three-quarters of the money that flowed out from the sector did so during the third quarter, a period that coincided with extreme market turbulence.

Calastone reported that investors took particularly evasive action in relation to UK-focused funds. Net sales of holdings – that is, outflows of money – were recorded in the sector during every month of 2022, with the overall amount, including non-equity funds, totalling nearly £8.4 billion for the year.

Elsewhere, investors also sold out of European funds to the tune of £2.6 billion during 2022, the fourth consecutive year of net sales in this sphere. Other sectors experiencing net losses over the period included North America (£1.2 billion) and Asia-Pacific (£1 billion).

The Fund Flow Index showed that last year was also a bad one for so-called ‘passive’ index tracker funds, with the sector experiencing net sales of £4.5 billion.

In contrast, global funds – whose portfolios are invested across a range of geographical regions – continued to attract money.

Calastone said investors added nearly £5 billion to the sector last year, thanks mainly to the appeal of global funds that incorporated an environmental, social and governance – or ESG – investment mandate.

Emerging market funds also enjoyed net inflows of cash worth £650 million.

Despite a seismic year on the bond markets, the fixed income sector was another to experience net inflows of cash worth £2.9 billion, well under half the £7 billion in investors’ cash that found its way into bond funds during 2021.

Edward Glyn, head of global markets at Calastone, said: “2022 was momentous. The sudden flip by central banks from floods of liquidity and cheap money to a barrage of rate hikes aimed at taming rampant inflation turned asset markets upside down.

“Such large outflows from equity funds in 2022 without a corresponding increase in other asset classes is a very large vote of no-confidence. Fund management groups were hit with a double whammy. The supply of capital shrank as bond and equity markets fell, and the replenishment rate either reduced or went into reverse as investors either slowed their buying or fled for the safety of cash.”