Calastone: UK investors ditching regional equity funds for global sector

Global equities pulled in a net £18.9bn since July 2021, while regional strategies suffered £21.1bn outflows

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UK investors are increasingly turning their backs on regionally-focused equity funds in favour of global strategies, according to data from Calastone.

Since 2015, funds with a global remit have enjoyed £51.3bn net inflows from UK investors, while all other geographical sectors have pulled in just £909m in that period.

In that time, the global equity sector has only suffered net outflows in nine months, compared to 51 for regional-focused funds.

See also: Calastone: ESG funds suffer highest ever monthly net outflows

The trend has accelerated over the last two years. Since July 2021, £18.9bn has flowed into global funds. In regional strategies, the picture is somewhat darker, with the sector shedding £21.1bn in that time.

While Calastone noted that ESG funds are one of the drivers for the shift as they are accountable for 70% of global fund inflows since July 2021, they are not the sole reason for the trend.

Investment Association data reveals a similar trend. In 2013, UK equity funds’ assets under management (AUM) were double those within the global sector.

Four years later, UK equity strategies were 70% larger. However, figures for May 2023 revealed that global funds have now overtaken the UK sector, with £166.4bn AUM compared to the latter’s £141.1bn.

Edward Glyn, Calastone managing director, commented: “There is a clear logic in opting for global funds. Most of the world’s most successful companies operate globally, so where they are listed is immaterial. Global funds mean investors get exposure to these stocks. They also save investors the worry of trying to pick winning regions – retail investors typically lack the time and expertise to stay on top of which parts of the world are on the up and which are on their uppers.

“In theory, global funds offer the most effective diversification too, though in practice there are flaws in this argument. The huge size of a few US technology companies means global funds that cleave to their benchmarks typically have a very large weighting to a handful of names.

“The trend looks unlikely to change. We see short periods when particular regions enjoy a moment in the sun – emerging market funds are enjoying significant inflows just now for example. But on the whole, investors are clearly content to set their allocation preference to global and allow their monthly direct debits to do the rest.”

See also: Global equity income funds show slow and sure progress

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