Calastone: Funds made record returns in 2023 but investors remain bearish

Rising equity markets pushed the value of mutual funds up by $10.7trn

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The value of assets held in mutual funds rose in a record-high of $10.7trn throughout 2023, bringing the total amount held to $70.9trn, according to new data from Calastone.

This one-sixth increase recouped all the losses made in the previous year’s bear market, with most of the rally driven by rising share prices in equity markets.

However, fresh inflows had little to do with this leap in fund values – newly invested capital only accounted for one-fifth of last year’s increase.

Most of this came from US investors who were spurred on by rebounding share prices in their home market, but most investors around the world remained wary.

Overall, investors removed $7.1bn from equity funds in 2023, which was an improvement from the $13.3bn in outflows the year prior, but was a loss all the same.

Investors in the UK were the most pessimistic, withdrawing $1.8bn from equity funds throughout the year. This marked the second consecutive year of net outflows from UK investors – something Calastone’s head of global markets Edward Glyn has not encountered before.

“Two years of net selling is certainly unusual,” he said. “In the UK, where we have a longer history of data, we have never seen two negative consecutive years since we began compiling figures.”

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Globally, investors may have taken money out of equity markets in 2023, but the volume of trading was up 10% year-on-year. This could imply a greater willingness for investors to engage in equity markets following a period of heightened volatility in 2022.

Glynn said: “We tend to see trading volumes decrease in times of significant market volatility and negative sentiment. This might sound counterintuitive – it is easy to imagine that volatility breeds activity.”

There were $1.07trn in transactions in 2023, but the resulting $7.1bn outflow was worth just 0.2% of the overall dealings. This was also the case over the long term – there was $2.6trn of equity fund trades over the past five years, with the $51bn net inflow over the period accounting for less than 2% of the total transacted.

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