Continued conflict in the Middle East during July led to investors favouring more cautious asset classes, according to today’s data from the Investment Association (IA).
Easily the biggest winner was fixed income funds, which rose £863m, their fourth month of positive flows. Although this was a decline from the £2.2bn added in June, it reflects investors seeking potentially less volatile exposure than equities, with £333m poured into government bonds.
This hunt for more cautious, diversified exposure also extended to Mixed Asset funds, which saw another £733m added. The sector has now been in the black for inflows since September 2025, according to IA data.
Miranda Seath, director of market insight & fund sectors at the IA, said: “The composition of flows points to more cautious positioning, with investors continuing to favour fixed income and mixed asset funds while stepping back from equities.
However, while investors had become more cautious, they had not pivoted away from investing entirely, with net retail sales still up £278m in July, the ninth consecutive positive month of flows for the IA Universe.
“While July’s uncertainty has led to muted flows, this month’s data suggests that many investors are not withdrawing from markets altogether, but are remaining selective and continuing to seek diversified, lower-cost exposure alongside more defensive allocations.”
This pivot towards more defensive allocations is also reflected in the continued strong popularity of Money Market funds (up £206m), and volatility managed (up £444m) as investors favoured highly liquid investments during periods of market uncertainty.
Equities, however, posted another month of negative flows as investors pulled roughly £2.1bn from the asset class, up from the £1.3bn removed in June.
See also: IA: Global equity funds become the worst-selling sector in June
It was a particularly poor month for UK equities (down by £1.6bn), as pressure on public finances combined with a period of political transition as Andy Burnham took over from Keir Starmer.
Global emerging markets entered their fourth month of consecutive outflows, down £383m for the month.
Part of this was attributed to the downturn in Korean equities, as investors became concerned about the capital expenditure being deployed by the leading AI stocks, such as Samsung Electronics and SK Hynix. This was coupled with the heavy use of leveraged products by Korean investors, which magnified losses.
Paired with Asian economies’ reliance on oil imports, demand for some emerging market funds fell in July, according to the IA’s data.
And yet, some equity sectors enjoyed inflows, with the European funds back in the black after net outflows of £221m in June. Meanwhile, North American funds and Global funds attracted a further £192m and £50m respectively.
Finally, investors seem to have softened slightly to responsible and ESG investing, as outflows dropped to just £123m in July, their lowest level since April 2024.
Looking ahead, Seath noted that upcoming data will depend heavily on how the market reacts to the upcoming budget.
“Investors will be looking ahead to the new government’s first Autumn Budget and the forthcoming 10-year plan for Britain in order to inform investment decisions based on the direction of economic, tax and investment policy, particularly in light of renewed inflationary pressure further tightening the UK’s fiscal headroom,” Seath concluded.
See also: Bond market rout brings gilt yields to financial crisis levels
