Investors piled record amounts into equities last month as they attempted to buy into the Covid-19 bounce while fleeing the safety of money market funds.
Calastone data showed £2.6bn was ploughed into equity funds in April, outstripping the previous best month for equity funds recorded in July 2015 of £2.3bn.
Global funds took in £1.1bn, recording their best month of inflows on record, while UK equities saw an inflow of £1bn, chalking up their second-best month ever.
The April total was almost six times the average monthly inflow recorded over the past five years, according to Calastone, and came after two months of capital leaving risk assets for cash as Covid-19 hit markets.
Money market funds saw outflows in April, as investors switched out of cash-equivalents and into riskier assets, Calastone said.
Asian funds saw first inflows since November, while outflows from European funds slowed to their second lowest level since the end of 2018.
Middle of the month churn frenzy
Calastone noted most of the buying took place in the middle of the month as evidence began to emerge that the outbreak was beginning to slow down in some of the worst-hit European countries. In the first week of April alone £1.04bn flowed into equities but by week four the inflow was just £45.4m.
The Calastone FFI Equity Index jumped to 57.1 in April from 49.6 in March, its best reading in three years. A reading of 50 on the index shows an equal number of buyers and sellers. It said this was because churn of funds was high in April, meaning the month’s record inflow was the difference between a high volume of both sell and buy orders, rather than representing lots of buying and very little selling.
Calastone head of global markets Edward Glyn said: “Fear receded in April and capital flooded back into funds in its wake. As markets began to rise sharply, investors scrambled to add to their fund holdings, eager not to miss the best month for markets in 40 years.
“Greater caution set in later in the month, perhaps because investors began to question how solid the foundations of the rally could be given the mounting evidence of severe economic damage around the world, as well as White House sabre-rattling over new tariffs on China.”
Central banks aid risk-taking mentality
Commenting on the data, Tilney managing director Jason Hollands noted late March saw significant commitments by central banks to purchase assets and provide liquidity unprecedented in scale. He said central bank balance sheets expanded by more in a few weeks than they did over a full 12-months during the global financial crisis.
“The clarity of the message this sent is more important than the actual numbers: risk taking will be rewarded. While much of this excess liquidity will be reabsorbed into the real economy as businesses come off life support, initially this only has one place to go: the financial markets.”
He added: “There will be bumps in the road, but I do think that risk assets – especially equities – will be materially higher than where they are now by the end of next year. Those who hold back and wait for more certainty, will simply miss the boat.”
Fairview Investing investment consultant Gavin Haynes said: “The flows into equity funds illustrate the appetite to exploit oversold markets that we saw last month as investors focused on positive signs of the virus peaking and the scale of the stimulus.
“The flows will also reflect a significant amount of re-positioning within portfolios that will have been undertaken to adjust to a changing environment and also re-balancing of portfolios, increasing equity weightings which will have dropped following the heavy market falls in the first quarter.”
