UK investors slowed their purchases of equity funds in May, according to the latest Fund Flow Index from Calastone, the largest global funds network. Inflows dropped to £525m, down from £1.52bn in April and half the average monthly inflow of £1.03bn over the last three years.
Edward Glyn, head of global markets at Calastone said: “Global markets enjoyed strong gains in May as the Trump administration retreated from its extreme positions on tariffs. Investors bought into the rally but not with any great confidence. With so much uncertainty over inflation, interest rates, geopolitics and trade wars, it seems rational for investors to be cautious. Certainly, investors are being selective with where they put their capital.”
Buying was selective – a strong month for European funds but more caution on the US and global funds
European equities had their best month since June 2024, as investors added a net £369m to their holdings. Global fund inflows of £546m, by contrast, were around a third of their three-year monthly average, while inflows to US equities dropped to £115m, their second-worst month since September 2023. Emerging markets and Asia-focused funds saw outflows continue.
UK-focused funds saw reduced outflows – down to half the monthly average
Despite inflows to equity funds slowing overall in May, UK-focused funds saw an improvement month-on-month. Outflows from UK-focused equity funds slowed for the second month in a row, dropping to £449m, just over half the average monthly outflow over the last three years (£862m). Notably, the value of buy orders has held steady, so the reduced outflow is being driven by a reduction in selling activity.
Edward Glyn said: “The UK stock market is flirting with the all-time high it reached in February this year. This recovery has not been enough to spur new buyers to reappraise the prospects for UK equities, but it seems to be reassuring some would-be sellers that perhaps the long-awaited re-rating is underway. The relentless outflows from UK-focused funds in recent years represented a clear capitulation on hopes for UK shares. It’s too soon to call an end to this trend, but a less negative narrative is a necessary first step.”
Fixed income fund inflows returned in May as high market yields tempted investors – sovereign bond funds benefited most strongly
Among other asset classes, fixed income funds saw inflows in May for the first time since February. Investors added £328m to their holdings, following £1.94bn of outflows between March and April. Sovereign bond funds benefited most strongly from the improved sentiment, adding £182m in May. The same impulse meant less capital flowed into safe haven money market funds which are yielding much less than longer-dated bonds.
Edward Glyn added: “Bond yields climbed strongly during May, suppressing bond prices, as concerns over government solvency and inflation took their toll, but they clearly reached levels tempting enough to spur investors to lock new capital into high yields.”
