The tide of outflows for UK-focused equity funds mellowed in July to the lowest rate in three years, according to data from Calastone.
Investors drew a net £207m out of UK equity funds, a third of the average amount that has been withdrawn during a month in the last three years. The numbers were boosted by a strong day following the election of the Labour Government, seeing inflows of £59m.
The performance for UK equities was supported by an overall £2.19bn in inflows to equity funds throughout July, the largest inflows since March of this year. Throughout 2024, investors have poured a net £13.5bn into equity funds, making it the strongest seven-month period of Calastone’s 10 years of recording.
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Edward Glyn, head of global markets at Calastone, said: “One swallow doesn’t make a summer and we did still see outflows from UK-focused funds in July, but the improvement is consistent with the groundswell of positive commentary surrounding the investment case for UK equities.
“Growth indicators suggest the economy is outperforming its peers, while the arrival of a new government with a huge majority is in stark contrast to today’s political turmoil in many other major G7 countries and in the UK’s recent past. Last Thursday’s first cut in interest rates in four years also vindicated optimists who had begun to turn their attention back to their home market.”
North America made up over half of July’s inflows, at £1.12bn, while emerging markets shot up by £424m. Asia-Pacific was the only other geographical location to feel outflows for the month. Outside of equities, investors also took an interest in money market funds, adding £432m to the pot and £84m to fixed income.
See also: July fund performance: Small caps rebound in marathon month of politics
“UK households are sitting on record volumes of cash deposits worth £1.8trn, up £74bn over the last year alone. This reflects wage growth well ahead of inflation in recent months and it helps explain why investors have so much firepower to invest into funds at present,” Glyn said.
“Hopes for a soft landing for the global economy are seemingly unlocking some of that firepower for investment. Some markets, especially the US large caps, are already very expensive and have been extremely volatile in recent days, however, so investors must be alive to the risks of chasing high valuations higher.”
