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'Momentous' 2022 sees the lowest level of UK equities fund flows in eight years

According to Calastone data, UK investment fund flows were the lowest in eight years in 2022, as investors abandoned UK equities funds, selling a record £8.38 billion.

Net selling continued every month in 2022, resulting in the second consecutive year of outflows for UK-focused funds.

According to the business, three-quarters of equity fund losses occurred in the third quarter, coinciding with then-UK Prime Minister Liz Truss"mini-budget' and the accompanying market turbulence.

European funds are experiencing the highest withdrawals since the 2008 financial crisis.

Investors sold £2.65 billion in European funds, marking the fourth consecutive year of net selling.

Global funds continued to draw new capital, with a net £4.87 billion added as a result of popular ESG strategies. Global ESG equities funds raised £6.35 billion, while non-ESG equity funds lost £1.48 billion.

The fixed income sector received £2.89 billion in inflows for the year, which was much lower than the £7.07 billion received in 2021, when low interest rates pushed bond prices higher.

However, higher returns encouraged investors to add a net £1.67 billion in the fourth quarter.

Calastone highlighted that fresh investor funding into these funds would generate greater interest revenue than at any time in the previous 14 years. According to Calastone, the change in quarterly inflows may signal that investors have begun to anticipate the conclusion of the rate-hike cycle and have so positioned themselves for a potential bond-market rise.

Calastone's head of global markets, Edward Glyn, called 2022 a "momentous year," adding that "the rapid pivot by central banks from floods of liquidity and cheap money to a torrent of rate hikes aimed at curbing uncontrolled inflation flipped asset markets upside down."

He described the significant outflows from equities funds in 2022 as a "very large vote of no-confidence" among investors, with no comparable rise in other asset classes.

"Investors have sought out the safest havens they can find, taking refuge in cash and the perceived lower-risk fund categories," said Glyn.

While investor mood has improved significantly in recent weeks, Glyn says there is still uncertainty about the future path of interest rates and global economic growth.

"The expectation that the UK economy will suffer the worst recession among major economies has prevented the current burst of optimism spreading to UK-focused funds," he said.



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