Worries over soaring inflation, economic stability and the ongoing war in Ukraine saw retail investors pull money out of UK and US-focused funds at record pace during April.

UK equity funds saw £836 million of fund outflows last month, a record according to the latest Fund Flow Index from Calastone, the largest global funds network, as investors looked for safe havens for their capital.

US funds also saw substantial exits as investors turned their backs on North American equity funds that are dominated by large technology stocks, with outflows hitting £285 million, the second highest figure on record.

According to the Calastone Fund Flow Index, two-thirds of UK-focused equity funds saw outflows during the period but those focused on mid-cap and smaller companies featured more prominently on the sell list.

‘Together these two categories of UK-focused equity funds accounted for two-fifths of the net outflow from UK equities overall, a much larger share of fund flows than assets under management,’ the Calastone statement read.

This also explains why actively managed funds bore the brunt of the outflows, with almost three-quarters of the net total, as small-cap and mid-cap funds are more likely to be actively managed.

‘Outflows from UK-focused funds make sense at present given the weak economic outlook, but we were surprised at just how negative sentiment was,’ said Edward Glyn, head of global markets at Calastone. ‘Investors are wary. Everywhere we look, risk-off trades are dominating the picture.’

Investors have been beset by a relentless stream of bad news on the UK economy over the last few weeks, while absorbing the limited and heavily criticised set of measures announced by the Chancellor to protect households from soaring inflation.

‘Tax increases and an economic slowdown will only add to the pressure on household finances,’ said Glyn. ‘This helps explain why outflows were so large.’

Heavy selling of US and technology funds/equities are two sides of the same coin, given the dominance of the global technology giants on the US stock market, with rising bond yields a massive millstone around the neck of highly valued tech companies.

‘The patterns of trading suggest there is a switch taking place from growth to income,’ said Calastone’s Glyn. ‘That makes sense in the current climate.’

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Issue Date: 04 May 2022