Equity funds have continued to struggle in September, as UK investors withdrew a net £858m, bringing year-to-date outflows to £5.45bn, according to the most recent Calastone Fund Flow index.
UK-focused equity funds remained one of the most unpopular asset classes, with investors withdrawing more than £700m in September. This puts the total outflows at £47.7bn for domestic-focused equity strategies.
On top of this, North American, Asian, European, Japanese and Chinese focused equity funds were all also on the sell list, with Asian funds down £371m.
Edward Glyn, head of global markets at Calastone, said: “Investors are nervous and this is making them very picky.
“Equities overall remain firmly out of favour, particularly UK stocks, despite relatively resilient market performance.” Indeed, according to data from FE fundinfo, the FTSE All Share is up 9.1% so far this year, but UK funds have remained unpopular.
See also: ‘The calm may not last’: Financial happiness rises for fourth consecutive month
“High share prices, surging bond yields and significant geopolitical and inflation concerns mean investors have plenty of reasons to question how much equity risk they want to carry,” Glyn added.
Active funds once again struggled to make their mark compared to their tracker counterparts, with the former sliding while trackers once again attracted more capital.
That said, it was not entirely bad news for equity funds, with global equity funds attracting £410m and EM funds bringing in a further £133m. Glyn suggested this EM inflow reflected a search for diversification, given the very different economies and valuations compared with the heavily owned US market.
Meanwhile, bond funds remained popular in September, bringing year-to-date inflows to around £3.5bn.While high-yield funds were the big winner, rising £421m, sovereign bond funds staged a comeback by £116m, despite significant worries about government borrowing and yields which have characterised bond markets.
See also: Fidelity MPS goes neutral on equities and tilts to high yield bonds
“September’s global bond upheaval has a range of causes – rising energy prices and therefore inflation fears, weak government finances and competition from corporate borrowers.
“The resulting higher yields mean losses for existing bondholders, but they also increase the income available to investors buying at today’s prices, making bonds more attractive to new money.”
Mixed asset had a fantastic month, with the asset class attracting nearly £1.9bn of new capital in September. For comparison, across all asset classes (equities, money market, mixed asset and property), there was around £2.29bn of new money added.
“Money market funds complete the picture. Investors can currently earn a meaningful return on cash without any duration or equity market risk, a safe haven,” Glyn said. “All this shows that investors still want returns, but they are demanding more compensation for taking risk.”
