Edward Glyn - Head of Global Markets

UK-focused equity funds were pummelled with more large outflows in May, according to the latest Fund Flow Index from Calastone, the largest global funds network. May’s flight for the exits extended outflows from UK-focused funds to a record twelve consecutive months, longer than for any other segment of the market.

Moreover, the three worst months on record for UK equity funds have been in 2022 alone – May’s £826m outflow was beaten only by April’s outflow of £836m.

Risk aversion means flight from smaller companies

The higher risk profile of UK smaller-company funds meant they took particular punishment, accounting for £1 in every £6 of the May outflow, double their share of UK-equity assets under management.

UK-focused funds were not the only ones to see outflows. European equity funds had their worst month of the year, shedding a net £389m, while Asia-Pacific and regional funds also saw significant net selling. Global funds were the only geographical category to see significant inflows (£659m), of which £8 in every £10 was devoted to ESG strategies.

Equity income funds are also in favour. They saw their second consecutive month of inflows in May after years of unbroken outflows, garnering a net £36m in new cash.

The worst start to a year on Calastone’s eight-year record, especially for ‘regular’ equities

Altogether, equity funds collectively shed £310m of capital in May, taking the net outflow year-to-date to £877m. This is the worst start to a year on the Calastone Fund Flow Index’s eight-year record and contrasts to net investment of £9.0bn in the first five months of 2021. The contrast between ‘regular’ equity funds and their ESG counterparts is stark. The former has seen outflows of £3.7bn this year, the latter inflows of £2.8bn – suggesting a significant element of cannibalisation.

Property funds may be at a turning point, thanks to perceived inflation hedge

Among other asset classes, there are clear signs that property funds may be about to break their almost four-year run of monthly outflows. Net redemptions dwindled to just £8.1m, the lowest level since outflows began in 2018. Most of the decline was driven by a reduction in selling activity, but Calastone noted a marked increase in buying interest too, up by almost a fifth compared to the average over the last year.

Edward Glyn, head of global markets at Calastone said: “It’s relatively unusual for equity funds overall to see outflows. There is instead an in-built bias towards net investment simply because British investors steadily put away a portion of their incomes each month. Equity funds are facing a double squeeze at present however. On the one hand conditions in equity markets are unfavourable – volatility is high and riskier segments have seen very large price falls this year: fear of losses is deterring investors from adding new capital. One the other, the squeeze on household incomes is growing, encouraging people to keep back more of their earnings as a cash cushion. Bank of England figures show household cash balances grew by £13.5bn in April alone, the highest figure since lockdowns were in force and there was very little to spend money on.

UK-focused funds are taking particular punishment. In the short term, UK-focused funds are the largest category by assets under management, so they are an obvious first port of call for investors wanting to reduce equity exposure, even though the UK index has proved resilient this year. But this is also part of a long-term trend that has seen investors opt to diversify their holdings away from a UK stock market that is highly concentrated at the top end and exposed to a lacklustre UK economy at the bottom. Global funds solve both these problems – as a result they have absorbed $41bn since 2015 while UK funds have shed £1.2bn.

The turnaround for equity income funds reflects the relative inflation protection that income-generating stocks provide. This has held true during 2022’s market convulsions – yield stocks have outperformed this year and investors are noticing. Signs that property funds may be coming back into favour are driven by the same forces.”


Calastone analysed over a million buy and sell orders every month from January 2015, tracking monies from IFAs, platforms and institutions as they flow into and out of investment funds. Data is collected until the close of business on the last day of each month. A single order is usually the aggregated value of a number of trades from underlying investors passed for example from a platform via Calastone to the fund manager. In reality, therefore, the index is analysing the impact of many millions of investor decisions each month.

More than two thirds of UK fund flows by value pass across the Calastone network each month. All these trades are included in the FFI. To avoid double-counting, however, the team has excluded deals that represent transactions where funds of funds are buying those funds that comprise the portfolio. Totals are scaled up for Calastone’s market share.

A reading of 50 indicates that new money investors put into funds equals the value of redemptions (or sales) from funds. A reading of 100 would mean all activity was buying; a reading of 0 would mean all activity was selling. In other words, £1m of net inflows will score more highly if there is no selling activity, than it would if £1m was merely a small difference between a large amount of buying and a similarly large amount of selling.

Calastone’s main FFI All Assets considers transactions only by UK-based investors, placing orders for funds domiciled in the UK. The majority of this capital is from retail investors. Calastone also measures the flow of funds from UK-based investors to offshore-domiciled funds. Most of these are domiciled in Ireland and Luxembourg. This is overwhelmingly capital from institutions; the larger size of retail transactions in offshore funds suggests the underlying investors are higher net worth individuals.

Edward Glyn, Head of Global Markets

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