UK investors flocked back into equity funds in record size in November, according to the latest Fund Flow Index from Calastone, the largest global funds network. After October’s record outflows, prompted by fears, subsequently justified, that the Chancellor would hike capital gains tax, November in turn saw equity-fund inflows at all-time highs, breaching the £3bn mark for the first time. The two months mirrored each other closely. October’s net selling was £2.71bn as investors took profits, while November’s net buying was £3.06bn as investors reinvested all the funds they had withdrawn the month before.
Global, North American and emerging market funds were the biggest beneficiaries of the inflows, with investors committing £1.22bn, £848m and £426m respectively. European funds also saw inflows, but Asia-Pacific, income and specialist sector funds suffered further net selling, though all at a much lower level than in October.
UK-focused equity funds saw their first inflows in 42 months
Most notably, funds focused on the UK market saw their first month of inflows since May 2021, breaking a 41month stint of unrelenting net selling. Investors added a net £317m to UK-focused funds in November, having withdrawn £25.33bn in the previous three-and-a-half years.
Edward Glyn, head of global markets at Calastone said: “The biggest tax-raising budget since 1993 prompted a scramble to shield profits on funds from higher levies. But investors were keen not to be out of the market for long. Almost half of October’s outflows were poured back into equity funds in the first week of November, further evidence that these record flows were all about minimising tax bills. Time will tell, but the inflow to UK-focused funds is therefore likely to be a hiatus rather than marking a break in the trend. There is no major catalyst on the immediate horizon to prompt a wholesale resurgence of interest in the much unloved UK stock market.”
Fixed income funds saw net buying increase as investors sought to lock into high yields
Across other asset classes, fixed income funds saw inflows rise to £764m, meaning they have now reversed all the net selling Calastone saw across its network in August and September. Money market funds saw inflows drop to £131m, their lowest since April, mainly reflecting the allocation changes that have occurred around all the budget activity.
Edward Glyn added: “Bond yields fell during the second half of November after surging from their mid-September low point. Outflows from fixed income funds in August and September reflected profit taking as bond yields came down on expectations of rapid rate cuts (lower bond yields mean higher bond prices). Yields rose again on fears that inflationary pressures were building once more. These higher yields have tempted investors back into fixed income funds over the last few weeks. Those who added to their fixed income holdings in the first half of November are already enjoying capital gains.”
