ESG strategies suffered their highest ever month for flows as UK investors pulled a net £376m in July, according to Calastone’s latest Fund Flow Index.
It takes net redemptions for green funds to over £1bn since May.
Despite a global stock market rally in July, investors pulled £983m from equity funds. The report noted that investors looked to capitalise on higher share prices in July as an opportunity to withdraw capital from the asset class.
By geography, UK equity strategies suffered net redemptions of £710m to mark the 36th consecutive month of outflows for the sector.
US equity strategies recorded their second worst ever month for outflows since Calastone started its Fund Flows Index in 2015, with £588m withdrawn. Net redemptions also accelerated in European and Asia-Pacific strategies.
Global equity funds bucked the trend within the asset class, pulling in a net £837m in July. Investors also placed £305m into emerging markets.
See also: Mark Northway: The subtle signs that ESG is coming of age
Money markets continue to attract investors
Instead, investors looked to lock in high yields as fixed-income funds pulled in £347m over the month. However, Calastone noted a volatile month for bond yields meant the asset class only attracted half as much compared to June’s £880m.
Money market funds alone attracted £403m. The asset class has enjoyed renew interest recently as it makes use of bonds that are set to mature soon, enabling investors to earn income on cash with less sensitivity to interest rate rises than conventional bond funds.
The inflows recorded in May, June and July for money markets were three of the top five months for the fund grouping on Calastone’s record.
See also: Money market funds grow 306% at Interactive Investor
Edward Glyn, head of global markets at Calastone said: “Inflation is still higher than bond yields in many parts of the world, especially the UK, so returns are still negative in real terms. But if and when inflation returns to target, locking in at today’s high bond yields for the medium to long term will offer significant benefits to those investors who have committed capital to fixed income funds.
“Meanwhile, 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 future.
“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. The return on a bond can be predicted with near certainty if it is held to maturity, depending on its credit rating, while equity markets are fraught with risk.
“With the outlook for global economic growth uncertain and corporate earnings estimates being revised down, attractive fixed income yields have tipped the balance for fund investors away from equities for the time being.”
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