UK Investors Shift to Fixed Income and Money Market Funds, Equity Outflows Continue

UK investors displayed a preference for fixed income and money market funds over equities, property, and mixed assets in July, as revealed by the latest fund flow index from Calastone.

Despite positive global stock prices, UK equity funds sustained their 26th consecutive month of net outflows in July, amounting to £983 million. This marks the highest level of outflows since September 2022, bringing the total outflows for the asset class to £1.95 billion over the past three months.

US funds also faced challenges, experiencing net outflows of £588 million in July, the second-worst month on record for them. Property and mixed asset funds were not exempt from the trend, with net outflows of £66 million and £82 million, respectively.

Environmental, social, and governance (ESG) funds bore the brunt of the outflows, losing £376 million in July alone. This has contributed to a cumulative outflow of £1.02 billion for ESG funds since May. In contrast, global equity funds, emerging markets, and specialist technology funds saw inflows in July.

The "AI boom" spurred inflows of £61 million into the small technology fund sector, marking four consecutive months of inflows following a 15-month period of mostly outflows.

Fixed income funds attracted inflows of £347 million in July, indicating investor interest in high yields. However, the month's volatility in bond yields resulted in lower net buying compared to June's £880 million.

Investors displayed "strong" buying behavior for money market funds, drawing £403 million in July. This trend is attributed to a preference for liquidity amid rising interest rates. Over the past six months, money market funds have garnered more inflows than the previous four years combined, according to Calastone data.

Edward Glyn, Head of Global Markets at Calastone, noted, "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." He added, "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 the future."

By fLEXI tEAM