Most popular fund sectors of 2025 as outflows continue

(Image credit: Getty Images/Oscar Wong)

Investors remained cautious about putting money into financial markets in 2025, with industry data showing another year of outflows but the rate of withdrawals is dropping.

Last year was a volatile period for those looking to invest, with worries about Trump tariffs, geopolitical tensions, fears of a technology bubble in the US and the Autumn Budget in the UK.

Investment Association (IA) data shows net retail outflows from funds totalled £2.3 billion in 2025, matching 2024, following a £2.0 billion boost to inflows in December to close the year.

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Miranda Seath, director of market insight and fund sectors at the IA said: “2025 saw a small outflow from UK retail funds. Through extended periods of geopolitical and market uncertainty, investors were cautious. In 2025, investors rotated away from US and global equity strategies and into diversified, lower‑risk asset classes, such as money market, mixed asset and mixed bond funds.”

Equity funds

Investors took £16.8 billion out of equity funds in 2025.

This was blamed on caution about high exposure to large cap US tech stocks as speculation grew that an artificial intelligence (AI) bubble could cause a correction in their valuation.

North American equities saw £2 billion of redemptions in the second half of the year, while Global equity funds, many of which have significant exposure to the largest US tech companies, saw -£4.8 billion flow out across the year.

This sentiment mildly benefited European equity funds, which reached inflows of £761 million.

Meanwhile, UK equity outflows were at £11.1 billion but this was their best performance since 2021.

Laith Khalaf, head of investment analysis at AJ Bell, said some of the UK’s performance can be explained by the shiny lights in Silicon Valley attracting money to the other side of the Atlantic.

He added that DIY investors may feel more comfortable investing in individual stocks in their domestic market, so they have less call for a fund manager to do this for them.

It comes despite the UK stock market, and the FTSE 100 in particular, hit record highs last year

Khalaf added: “Strong performance from the UK stock market in 2025 doesn’t seem to have stemmed the tide. £11.1 billion of outflows speaks for itself, and suggests the rally in domestic stocks was heavily influenced by overseas buyers, rather than demand from UK fund investors.

“If that scale of outflows happen in a year of strong performance, there won’t be many newly qualified investment managers gagging to score a job on a UK equity desk, nor many fund groups seeking to employ them for that matter. That will only serve to further entrench the shift away from UK equity funds.”

Money market funds

Money market and mixed asset funds emerged as the year’s bestselling asset classes, attracting inflows of £6.9 billion and £4.5 billion respectively, the IA said.

It is a sign that nvestors prioritised diversification and stability amid heightened geopolitical and policy uncertainty.

Short-Term Money Market funds were the best-selling sector in 2025 with inflows of £6.1 billion.

The IA said: “As investors waited to see how markets would move following the introduction of tariffs, money market funds were a useful short-term, liquid option for many investors managing their allocation strategies.

“However, through 2025 we have seen inflows for 10 of the 12 months of the year as sustained uncertainty has driven increasing use of defensive positions.”

Fixed income funds

Fixed income funds were also popular as investors got defensive, posting £1.1 billion of inflows over the year.

This was down from £3.6 billion in 2024 though.

Mixed Bond funds were the most popular with £1.2 billion in net inflows over the second half of the year.

Active versus passive funds

It was a tough year for active funds, as tech and AI stocks continue to push up global indices.

Investors took advantage of this and tracker funds attracted £12.8 billion of inflows in 2025, down from a record £27.6 billion in 2024.

Meanwhile, actively managed funds saw outflows ease to £15.1 billion, compared with £29.9 billion in 2024.

Khalaf added: “Passive funds are simpler, cheaper, and have been performing better. As our latest Manager versus Machine report shows, over the past ten years just 24% of active managers have beaten a passive alternative.

“Index trackers also appeal to those who invest money on behalf of others. Explaining why an active fund you have chosen has underperformed isn’t a fun job for pension scheme managers and financial advisers. If an index tracker falls in value, that can simply be attributed to Mr Market. Investing in passive funds therefore removes some significant career risk, and at a lower pricing point to boot.”

Where to invest in 2026

Seath is confident that retail fund flows will continue to bounce back in 2026.

She said: “Demand for diversified, lower risk allocations looks set to continue in a climate of persisting geopolitical uncertainty, evolving monetary policy in the UK and the US and ongoing concerns around high US equity valuations.

“At the same time, investing is a long-term game. The Leeds Reforms provide a once in a generation framework to bring more UK adults into investing: the stage is set to drive an increase in retail investment across the UK.”

Marc Shoffman is an award-winning freelance journalist specialising in business, personal finance and property. His work has appeared in print and online publications ranging from FT Business to The Times, Mail on Sunday and the i newspaper. He also co-presents the In For A Penny financial planning podcast.