UK investors withdrew a staggering £25.7bn from funds last year, smashing the record for annual retail outflows, according to data published by the Investment Association (IA).
Prior to 2022, no year had ever finished with more money being withdrawn from strategies than invested, with 2008 being the second-worst year for fund flows. That year, net inflows totalled £4.2bn.
IA chief executive Chris Cummings blamed soaring inflation following the Russian invasion of Ukraine, and the energy and supply shocks that followed. “Investors grappled with a cost-of-living crisis and returns from stocks and bonds falling in tandem.”
The difference between UK investor confidence in 2022, compared to the year before, is stark, with funds attracting nearly £45bn of net inflows in 2021.
AJ Bell’s head of investment analysis, Laith Khalaf, called 2022 a dark year for the industry. He added: “Indeed, 2022 is the only calendar year in which fund sales to retail investors have been negative, and not by a few pennies either, but to the tune of over £25bn. The figure is so starkly at odds with what went before that it requires at least one double take. The pain for the investment management industry is compounded by £24.4bn of institutional fund outflows, taking the total net outflow for the year to an astonishing £50.1bn”.
Emma Wall, head of investment analysis and research at Hargreaves Lansdown, said it was no surprise to see investors turning off markets in 2022 owing to the “extreme” economic and political turmoil.
However, she added that the scale of the outflows was “eye-watering”.
The rate at which UK investors pulled their money slowed somewhat in December, though it was still the tenth month of 2022 in which net retail outflows were recorded. UK investors withdrew £282m from funds during the month, compared to net £2.3bn being invested in the equivalent period in 2021.
The five best-selling IA sectors in December 2022 were as follows:
|Targeted Absolute Return||£107m|
|Global Equity Income||£98m|
Equity funds in general saw net outflows soften to £33m, though UK equity strategies were hit by clients pulling net £1.1bn. Asian funds, alongside North America and Global, were the only regional sectors to return positive flows, while fixed income and ‘other’ – which includes the Targeted Absolute Return, Volatility Managed, and Unclassified sectors – were the only two asset classes to experience inflows.
A brighter horizon?
Despite the torrid 2022 for UK investors, AJ Bell Khalaf looked on the brighter side: “If the funds industry wants to take something positive from a calamitous year, perhaps it’s worth noting that previously poor years in 2008 and 2016 were followed by 12 months of bumper inflows. Another glimmer of light is that outflows moderated towards the end of the year, and it’s almost unthinkable that 2023 will be anything but a significant improvement on last year’s showing.”
Hargreaves Lansdown’s Wall identified that 2023 has got off to a more optimistic start, noting that the FTSE 100 has been flirting with record highs. She also pointed out that the US market has been led by better-than-expected results from a number of the tech giants, and falling inflation.
However, her optimism was qualified: “HL clients have responded to the rally by buying into global equity funds – though more cautious money market and total return funds also hit the top 20 for January. Perhaps those investors recognise we’re not out of the woods yet, and know to expect more volatility through the year, as markets digest jobs figures, inflation outlook, central bank policy – and the ongoing war in Eastern Europe.”
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