Equity funds saw their first monthly outflows in September since October 2023, according to the latest Fund Flow Index from Calastone, the largest global funds network. Investors pulled a net £564m from their holdings, ending a 10-month stint of near record-breaking inflows.[1]
UK-focused funds bore the brunt of selling with outflows of £666m
Outflows were, however, very concentrated. Investors were especially negative on UK-focused equity funds, selling down £666m, while equity income funds, a sector with large UK-equity weightings, shed £416m. Specialist sector funds also saw outflows accelerate to a record £512m, with gold funds and green funds seeing the most significant impact.
All other geographically focused fund sectors saw inflows, though at a lower level
Beyond the UK, all other major geographically focused fund sectors saw inflows in September, though in every case these were lower than August and lower than their monthly averages over the last year. European equity funds saw the biggest drop in inflows, down to just £43m, compared to the £249m monthly average over the previous twelve months. Global equity and US equity funds were the most popular, absorbing £422m and £413m respectively.
Edward Glyn, head of global markets at Calastone said: “Global markets had a rocky start to September but finished the month in positive territory. There is clearly growing caution about growth – the sharp drop in inflows to European funds accompanies a slew of negative news coming from the Eurozone. The UK top 100 index ended the month a touch lower, while UK small and mid-cap indices were flat. The new government’s rather pessimistic commentary about the UK economy appears to have put a stop to the nascent revival in interest in domestic equities that we first detected in trading data in July. UK-focused funds seem to be off the menu for investors for the time-being.”
Fixed income funds shed £769m as investors banked the profits of bond-market rally
Fixed income funds saw the largest outflows, with selling concentrated in the first few days of the month ahead of rate decisions by the ECB, Federal Reserve and Bank of England. Since the beginning of August, Calastone has seen the biggest outflows from fixed income funds on its 10-year record, except for during the flash crash at the outset of the pandemic in April 2020. After £516m of outflows in August, September saw investors cash in a further £769m of their fixed income fund holdings.
Safe-haven money market funds were the main beneficiary of capital leaving fixed income funds. Investor added £383m to their holdings in September following strong buying in August (£593m).
Edward Glyn explained: “Bond markets have rallied strongly over the last six months with yields plummeting as investors watched economies cool around the world and priced in the likelihood of falling interest rates (falling yields mean higher bond prices). Expectations ran high that the US Federal Reserve would cut rates by half a percentage point in mid-September – which it duly delivered – so investors seemingly followed the adage ‘buy the rumour, sell the news’ and banked their gains.”
[1] Nov 23 to Aug 24 £15.75bn, second only to Nov 20 to Aug 21 £16.61bn
