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UK investors pull record £1.9bn from equity funds in August

UK investors pull nearly £2bn from equity funds in August surpassing post-Brexit vote record withdrawals

  • The previous outflow records were set in mid-2016 following the Brexit vote
  • Infrastructure and renewable energy-specific funds posted modest inflows
  • UK-focused funds had the largest net outflow overall, losing £759m in total 

British investors withdrew a record amount from equity funds last month amid worsening economic pressures, according to fresh figures.

London-based Calastone said that a net £1.93billion was taken out of equity funds in August, with most of this outflow resulting from selling activity rather than a slowdown in buy orders.

This comfortably surpassed the previous records set in June and July 2016 of £1.54billion and £1.56billion, respectively, following the UK’s vote to leave the European Union.

Outflows: London-based Calastone said that a net £1.93billion was taken out of equity funds in August, with most of this outflow resulting from selling activity

All regions witnessed net outflows but UK-focused funds had the largest overall, losing £759million in total and marking the 15th consecutive month of net withdrawals.

Meanwhile, North America and Asia-Pacific also had record bad months, with the latter territory badly affected by extremely strict lockdown restrictions in China.

Even emerging markets funds, which have benefited from skyrocketing petroleum prices following the loosening of Covid-19 regulations and Russia’s full-scale invasion of Ukraine, experienced net outflows.

It means that equity funds have lost £4.3billion so far this year, which is the second worst eight-month period since Calastone started recording such data in 2014.

‘When central bankers tell you unambiguously how determined they are to squeeze out inflation, even if that means generating a painful recession, it pays to listen,’ said Edward Glyn, the head of global markets at Calastone.

‘Markets are absorbing the likelihood that inflation will be extremely pernicious and persistent, meaning that interest rates will stay higher for longer than initially expected. The combination of a weaker economy and higher rates is very negative for share prices, especially of growth stocks.’

Despite the significant market weakness, Glyn noted that sector-specific funds had achieved modest inflows, including infrastructure and those with an environment, social and governance leaning.

Renewable energy funds did very well as soaring gas prices encouraged more people to invest in cheaper and greener alternative energy sources.

‘These funds are a tiny part of the UK’s funds market, but they are providing a valuable counterweight for some investors in these volatile times,’ said Glyn.

Bond funds also earned inflows of £820million even though bond markets are enduring a major slump caused by interest rate hikes and surging inflation.

Digital asset manager Collidr revealed last month that UK corporate bonds lost almost £300billion in value over the first half of the year, a 13.3 per cent decline, compared to a 3 per cent drop for the FTSE 100 Index.

Collidr’s research further showed that the value of UK government gilts over the same period underwent its largest percentage fall since the 1980s – 14.8 per cent.