Investors sold £83m of equity funds in just two days at the end of November as news around the Omicron coronavirus variant developed, but equities saw overall inflows during the month thanks to record buying of ESG funds.
Calastone’s latest fund flows index revealed the Omicron variant introduced a risk-off sentiment among investors late in the month as governments reintroduced measures such as restrictions on travel and compulsory facemask wearing.
This fuelled a 60% increase in trading volumes between Thursday 25 November and Monday 29 November, resulting in £83m of equity funds being sold off.
Equity funds saw overall net inflows of £528m in November. However, Calastone said this disguised a growing risk aversion among investors, evident in the outflows from US and European equity funds of £395m and £534m, respectively.
Similarly, outflows from UK equity funds totalled £464m during the month, the sixth worst month on Calastone’s six-year record and the sixth consecutive month of net selling.
But these outflows were offset by £1.5bn flowing into ESG funds, a record according to Calastone’s six years of data.
The risk averse attitude was reflected by a sharp increase in inflows to safe-haven money-market funds. In November, investors added £108m to this asset class after outflows in 10 of the past 12 months.
Calastone head of global markets Edward Glyn, said: “Covid-19 continues to be a key driver of both market sentiment, and fund flows. The spasm at the end of the month that saw a sudden rush for the exits and a spike in trading volumes was a clear reaction to Omicron’s discovery, though the selling was measured, rather than a rout.
“Meanwhile, the record outflow from European equity funds reflects the vicious fourth wave that was already sweeping through many countries and the imposition of new restrictions, even before Omicron appeared on the scene. Europe’s inflation problem isn’t helping either. For US equities, we suspect the outflow is also linked to the surge in bond yields, to which US equities are very sensitive. All of this adds up to greater risk aversion.”
