Investors started 2025 in a more pessimistic mood, with more than £1 billion of outflows from UK equity funds.
Figures from data firm Calastone shows investors took a net £640 million from equity funds across all sectors in January amid economic and political uncertainty in the UK and abroad.
It is the only month since late 2023 to see outflows – except for October 2024 when net selling was driven entirely by pre-Budget concerns about capital gains tax hikes.
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Investors have been spooked in recent months by tax rises in the UK, which have pushed back expectations on interest rate cuts, while there are international concerns about the new Donald Trump presidency and his promise to introduce international trade tariffs.
Overall, Calastone’s Fund Flow Index recorded £1.4 billion of outflows from active funds, while £780 million went into lower cost passive index funds.
Here is where investors have been putting money in and pulling it out.
Investors exit UK and European equity funds
UK-focused equity funds shed £1.07 billion in January, according to Calastone’s Fund Flow Index, the sixth worst month on record for the unloved market.
The figure made up most of the overall outflows from equity funds.
That is despite UK stocks hitting record highs in 2024 and reflects concerns about tax rises and the economic environment under the Labour government, with many wealthy people already exiting Britain.
Another £425 million was withdrawn from environmental, social and governance-focused funds and £265 million left European equities.
Edward Glyn, head of global markets at Calastone, said: “UK fund investors seem to have given the government’s fretful growth narrative a clear thumbs down.
“The UK stock market reached all-time highs in January, but investors merely took this as an opportunity to get out while the going was good. Meanwhile, political instability and increasing anxiety about the economy have put Europe back on the sell list after a strong 2024 for inflows driven by rising share prices.”
Making American equity funds great again
North American equity funds continue to attract investor interest, helped by the strong performance of the Magnificent 7 technology stocks.
That is even despite uncertainty about the new Trump presidency and the shock to the sector from the launch of DeepSeek AI.
The analysis showed that £576 million flowed into the sector as the stock market rose strongly following a wobbly December.
Glyn added: “Apparently nothing can dent the enthusiasm for US stocks, however. Even the DeepSeek AI shock that happened late in the month spurred appetite rather than fear.
"The day after technology companies saw $1trillion wiped off their market value, North American equity funds had their best day of the month with £167m of net inflows.”
Bad month for bond markets
The market grew more cautious on fixed income funds as yields climbed and prices fell, prompting investors to cash out, the research found.
Fixed income funds saw inflows fall by two thirds month-on-month to £267 million, Calastone said — their weakest showing since September when investors were taking profits at the end of a long bond-market rally.
All fixed-income sectors had a worse month but sovereign-bond funds saw the biggest drop-off in interest – inflows fell by almost nine-tenths to £41 million.
Glyn added: “Bond markets had a terrible start to 2025 with yields on benchmark US Treasuries and on UK gilts surging to their highest level since before the global financial crisis.
“Investors bought into this market decline in the first half of the month – enabling new capital to lock into these ultra-high yields, before turning net sellers as calm returned.
"This is a pattern we often see in the millions of trades Calastone processes every month. Bond yields remain high, with the outbreak of an inflationary trade war potentially keeping them at elevated levels.”
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