UK investors shunned stocks in July, withdrawing £983m from equity funds despite a global stock market rally.
According to Calastone’s latest Fund Flow index, UK investors withdrew money from equity funds while adding to fixed income and money market funds.
Investors continue to shun equity funds
July 2023 marks the 26th consecutive month of net outflows for equity funds. Over the past three months, investors pulled £1.95bn from equity funds.
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"For now, investors remain very risk averse, choosing the strong rally in global share prices as an opportunity to withdraw cash rather than bank on further gains," says Edward Glyn, head of global markets at Calastone.
UK equity strategies suffered net redemptions of £710m to mark the 36th consecutive month of outflows for the sector. In the US, equity focused funds experienced £588m in net outflows.
Net selling of European, Asia-Pacific and country funds also accelerated in July.
Property and mixed asset funds also suffered outflows in July, totalling a net £66m and £82m, respectively.
ESG strategies suffered their highest ever month for flows as UK investors pulled a net £376m in July.
Overall, British investors have pulled more than £1bn from ESG funds since May.
Bucking the trend, global equity funds reported inflows of £837m. Investors also placed £305m into emerging markets.
UK investors’ flight to safety
The figures show that UK investors are focusing on safe harbours such as bonds and money market funds.
Fixed income funds enjoyed £347m inflows in July, driven by interest in high yields, although this was down on June's £880m of inflows.
"Inflation is still higher than bond yields in many parts of the world, especially the UK, so returns are still negative in real terms. But if and when inflation returns to target, locking in at today's high bond yields for the medium to long term will offer significant benefits to those investors who have committed capital to fixed income funds,” says Glyn.
Money market funds saw £403m of inflows in July, attributed to a preference for liquidity amid rising interest rates.
“Money market funds offer even higher short-term returns while policy rates are still climbing and their low risk means capital values remain very stable should investors wish to switch back to higher-risk assets in future,” Glyn adds.
Inflows to money market funds over the last six months have topped the previous four years combined.
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