Investors pulled £1bn from UK equity funds in November, with the asset class experiencing its second-worst month since Calastone launched its Fund Flow Index. The worst month on record was June 2022, with £1.1bn yanked by investors.
According to Calastone, UK equity funds have now suffered 18 consecutive months of outflows, which has seen a total of £9.8bn pulled from the sector.
The picture was brighter for equities outside the UK, however, with the asset class as a whole experiencing net inflows for the first time in seven months.
Head of global markets Edward Glyn said: “The trajectory of US interest rates is today’s key driver of global markets, but local factors overlay this core factor. In the UK, bond yields rose much higher during the ill-fated Truss interval than among similar nations, but have since come back into line.
“Fears over the potential duration of the UK’s recession rather than hopes for inflation abating are dominating investor concerns for UK assets. Inflation will fall in the UK in 2023 simply as the anniversary of its acceleration kicks in, but it is becoming entrenched in expectations which will make it harder to eliminate quickly – inflation combined with recession is especially pernicious.
“The worst economic outlook in the G7 helps explain why UK equities are so unloved. Despite low valuations, you can barely give them away at the moment – symbolised by the loss of London’s crown as Europe’s largest bourse. The new chancellor may have steadied the ship, but there is still not much market confidence yet in the UK economy. The result is an intensification of investor selling of UK-focused equity funds with no end in sight.”
ESG equity funds posted their best ever month of inflows on Calastone’s records as £1.56bn was added to funds.
Net flows within equities, September-November 2022, (£m)
| Index-tracking equity | Active equity | ESG equity | Non-ESG equity | |
|---|---|---|---|---|
| September | -£472 | -£1,886 | -£126 | -£2,233 |
| October | -£286 | -£136 | £776 | -£1,198 |
| November | -£423 | £806 | £1,559 | -£1,176 |
Fixed income strategies saw a net £1.09bn flow in across the month. The global funds network said this reflected November’s fall in bond yields around the globe.
Glyn said: “Any inkling that inflation might be coming under control is good for bond prices because it means interest rates can peak at a lower level. Bond yields are simply market interest rates and when they fall, bond prices move mechanically higher.
“Investors scrambled to lock purchases in at higher yields in November, securing that superior income on their capital and anticipating capital gains as yields fell and bond prices rose.”
Net fund flows by asset class, September-November 2022 (£m)
| Bonds | Equity | Mixed assets | Real estate | Other | Total net flow | FFI all assets | |
|---|---|---|---|---|---|---|---|
| September | £72 | -£2,358 | -£740 | -£89 | £285 | -£2,830 | 46.0 |
| October | £336 | -£422 | -£745 | -£184 | £1,064 | £48 | 50.1 |
| November | £1,092 | £383 | -£143 | -£30 | £942 | £2,244 | 52.7 |
See also: Investor exodus from UK equity funds reaches record levels
