Global equities haemorrhage cash in £4.5bn bloodbath for UK funds

Targeted Absolute Return redemptions hit £628m despite growing demand for alternatives to equities

Chris Cummings chief executive IA
Chris Cummings

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Global equity funds were among the biggest losers in June, which was a relative bloodbath for the UK funds industry, as rising interest rates and fears of an impending global economic slowdown prompted investors to adopt a more risk-off attitude.

UK savers yanked £4.5bn from funds in total, the highest monthly outflow of the year so far and the second highest on record, according to stats from the Investment Association.

Over half of the 48 IA categories ended June in negative territory, with Short Term Money Market racking up the highest redemptions at £810m.

But global equity funds were not far behind, with net outflows hitting £738m, a huge leap up from the £174m net outflows it registered the previous month.

After being the bestselling category every month in 2021 excluding May, the sector has been in net redemptions since March this year as performance has nosedived.

Year-to-date the average global fund has fallen 8.8%, but many of the sector’s heavy hitters are nursing bigger losses. Fundsmith Equity, the largest UK fund with £24.1bn, has slumped 12.1% so far this year, while Baillie Gifford’s Long Term Global Growth Investment and Global Discovery funds, which manage billions of pounds between them, have both lost investors 31%.

UK and GEM equity funds rack up huge redemptions

All major asset classes suffered redemptions during the month, but equity funds were the hardest hit, losing £2.3bn.

The UK All Companies sector was the fourth worst seller, with net outflows of £556m, though this was not as dire as the previous month when it leaked £886m.

Global Emerging Markets and Europe ex-UK were the next worst for retail sales, shedding £451m and £422m respectively.

However, North America and Japan funds bucked this trend, attracting £55m and £19m in net inflows respectively. China focused funds also fared better, taking in an additional £41m.

Investors were also more receptive toward equity income funds. The Global Equity Income sector was the second bestseller, bringing in £189m during the month, while UK Equity Income saw modest net inflows of £4.2m.

Chris Cummings (pictured), chief executive of the Investment Association, said pessimism toward equity funds in June shows investors are looking at ways to better balance their savings.

“Savers are pre-empting slowing economic growth and preparing for further interest rates rises as we enter new territory for markets. Higher rates mean a weaker performance outlook for the high-growth companies that helped to fuel the bull market of the last decade.”

Investors continue to lose faith in absolute return funds

Against an increasingly uncertain market backdrop, funds in the Volatility Managed sector were the most popular with investors, attracting £248m in June.

Other alternatives sectors, such as Infrastructure and Property Other were also sought after, with the former bringing in close to £100m in net inflows.

Despite demand for diversifiers, the Targeted Absolute Return sector sustained £628m of net outflows, making it the third worst seller behind Global.

June marked its sixth month of consecutive net outflows, indicating investors have lost faith in absolute return funds’ ability to preserve capital in times of market stress.

Roughly one third of the 104-strong sector generated a positive return in H1 2022, while the average fund mustered a -1.8% return. However, this was better than their pure equity counterparts.

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