Calastone: January 2024 sees most bullish investor sentiment in almost three years

Investors added £2bn to equity funds in January in one of the best months on record, but Calastone warns that returning confidence ‘should be treated with caution’

Cautious bull market

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UK investors were at their most bullish in almost three years in January, adding £2bn to equity funds throughout the month, according to new data from Calastone.

This was the highest monthly increase since April 2021 and the eighth highest inflow on record, signifying a return in confidence from investors. Fund flows were also positive in November in December after six months of net divestment, taking in £449m and £1.2bn respectively.

Funds investing in US equities were the main beneficiaries of this upward trend in January, raking in £1.4bn of fresh capital throughout the month. Global funds came in at a close second as investors poured £1.1bn into the sector.

A main driver for the popularity of these sectors was the resurgence of ESG funds. They took in £1.6bn in January – the first positive inflow since April last year, during which time investors removed £3.7bn.

Declining inflation and a peak in interest rates has brought some much-needed sentiment back into equity markets, but Edward Glyn, head of global markets at Calastone, said the renewed popularity of ESG funds “should be treated with caution”.

“Strong markets are good for ESG inflows, particularly if the market rally is driven by US technology companies, but none of the bigger questions about the sector such as the greenwashing debate has gone away,” he said.

“The FCA’s new rules on ESG fund marketing will help, but are yet to take effect. Longer term, greater clarity and better disclosure will be good for the sector, but the road is likely to be bumpy in the short term.”

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However, not all sectors benefited from rising investor confidence – funds investing in UK equities were the worst hit in January, losing £673m in the 32nd month of consecutive outflows. This was higher than the £649m monthly average that was removed from UK equity funds in 2023.

Glyn noted that the UK has the same tailwinds as other equity markets, but UK investors have yet to find confidence in their home market.

“The UK is also experiencing a sharp disinflation, but the doom and gloom over the UK stockmarket seems firmly lodged in investors’ minds,” he said. “UK equities are exceptionally cheap by historic and international comparisons, but buyers are nowhere to be found.”

Other markets such as Asia Pacific also suffered outflows in this otherwise positive month. Funds investing in the region lost £211 in January, making it the fourth-worst month on record for the sector.

This was its ninth consecutive month of outflows – something Glyn credits to economic difficulties in China.

See also: Pridham Report: ‘Bruising’ 2023 sees record outflows for UK fund industry

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