Calastone: Equity funds shed most money since mini-Budget crisis

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07 November 2023

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Equity funds shed the most money in October since the crisis prompted by the September 2022 mini-Budget, Calastone has reported.

The sixth consecutive month of net selling saw £1.2bn leave the asset class as elevated interest rates and signs of an economic slowdown saw investors take fright.

UK equity funds were hit particularly hard, seeing a net outflow of £739m, while equity income funds lost a net £475m in October.

European equities funds had outflows of £318m and specialist sector funds had their worst month on record with a £275m net outflow as infrastructure funds in particular suffered.

For the full year-to-date equity funds have shed a net £2.9bn.

On a more positive note, emerging markets equity funds managed to book a positive net flow of £311m.

Money market funds were once again a major beneficiary as they hoovered up a net inflow of £586m, the third best month for the sector in Calastone’s records.

The flight from ESG funds continued at pace with outflows of £700m logged, the second worst month ever recorded. A net £3.1bn has left the sector over six consecutive months of selling.

Fixed income funds were also in net negative territory as bond valuations continued to suffer, but outflows dropped to £79m, having roughly halved each month since August.

Edward Glyn, head of global markets at Calastone, commented: “The bond-market crunch has brought a deepening sense of crisis to capital markets, even though the real economy has held up relatively well in the face of higher interest rates and tighter credit conditions.

“Investors are no longer only fretting about persistent inflation but now increasingly fear unsustainable fiscal deficits in the US, the UK and much of Europe. The higher risk premium they demand in compensation is pushing bond yields up and prices down. And when longer-term market interest rates rise like this, asset prices of all kinds come under pressure.

“Equity fund outflows are inevitable when bond markets are experiencing this wrenching repricing,” Glyn continued. “But what about income funds, which are lower risk than high growth propositions?

“Despite dividend income in the UK and around the world looking healthy, income funds are suffering by comparison to the interest income investors can earn on bonds, money markets and cash.”