Equity funds lost £2.71bn in October in a record high for outflows, according to Calastone’s Fund Flow Index.
In the month of the budget, UK-focused funds felt the largest equity sector outflows, but each category of equity funds faced outflows during the month. UK equity funds dropped £988m in the month, while equity income funds deflated by £733m. Even global funds, which have stayed in the green for the past two years, felt outflows in October of £263m.
Edward Glyn, head of global markets at Calastone said: “Fears of a Capital Gains Tax grab in last week’s budget spurred investors to book their profits and crystallise a lower tax bill well before the Chancellor rose to her feet in the Commons. Unease in September meant the early birds took fright first, but by October investors were flocking for the exits.”
See also: Autumn Budget 2024: Capital gains tax hiked to 24% in ‘blow for investors’
The changes in Capital Gains Tax policy saw an immediate effect on sell orders, which dropped 40% overnight in comparison to Budget day, according to Calastone’s real time transaction data. Buying, however, continued on trend. For the month as a whole, both buying and sell orders jumped 20% and 36%, respectively.
“There were no major catalysts in global markets to spur a rout in October – indices drifted lower in the second half of the month in response to rising bond yields, but there were no alarming moves. Instead, sharply higher selling by investors based here in the UK suggests the net outflow (the difference between the buying and selling) was driven by a motivation to book profits after strong market rises this year. Moreover, October’s robust buying activity indicates that investors were also happy enough to reinvest much of the proceeds of their sales back into funds.
“The startling change in behaviour between 29 October and Budget Day is a clear indication that tax was the main motivation for all this activity.”
See also: Are UK finances at ‘breaking point’ ahead of the Autumn Budget?
While equities weathered the storm, bonds enjoyed their highest inflows since June 2023 at £631m. The month follows a difficult September for bond markets, where the sector lost £769m. The fluctuation in the market follows interest rate decreases in the UK in August and the US in September, with the Federal Reserve instituting a 50 basis point cut. Investors also found a respite in October with money market funds, pouring £402m into the asset class.
“The suggestion that interest rates may stay higher for longer in the wake of the Budget made interest-earning assets like bonds and cash funds more attractive to investors.”
