April saw investors set a new record as they sold off around £836 mn ($1.05 bn) of UK equities, with two thirds of UK-focused funds seeing outflows and data from Calastone showing that it was smaller and mid-cap-focused funds that ‘bore a disproportionate share of the outflows’.
The April figure just topped the previous UK outflows record, set in January this year, when investors sold off £795 mn.
While 2022 has seen UK firms hit by inflation and volatility as a result of the war in Ukraine, Calastone notes that according to its monthly fund flow index (FFI), UK outflows are part of a longer-term trend. It says that over the last seven years combined, no net new capital has flowed into UK-focused funds.
Still, Edward Glyn, head of global markets at Calastone, says in a statement accompanying the latest data: ‘Investors are wary. Everywhere we look, risk-off trades are dominating the picture. Outflows from UK-focused funds make sense at present given the weak economic outlook, but we were surprised at just how negative sentiment was.
‘The flow of news on the UK economy has been relentlessly bad over the last few weeks as investors have absorbed the limited and heavily criticized set of measures announced by the chancellor to protect households from soaring inflation, while tax increases and an economic slowdown will only add to the pressure on household finances. This helps explain why outflows were so large.’
Glyn also describes it as ‘very telling’ that funds focused on smaller and mid-cap companies have borne the brunt of the selling. ‘These companies are much more exposed to an economic downturn,’ he explains. ‘A noticeable switch into UK-focused funds with an income focus is the flipside to this trend.’
‘Correction’ for global funds as ESG remains strong
Despite the record sell-off, UK-focused fund were not unique in their outflows. North American equity funds saw their second-highest outflows on record, Europe-focused funds saw ‘sharply higher redemptions’ month on month and technology funds saw their fifth consecutive month of net selling, according to Calastone.
But the firm’s April FFI shows that global funds were the standout, with £1.58 bn of inflows across the month. Calastone cautions that while this ‘looks very strong’ on a stand-alone basis, April’s global fund inflows ‘can reasonably be considered a correction of excessive negativity’ in March when selling hit a record £977 mn. The firm also points out that two thirds of the April inflow to global funds was devoted to global ESG equity funds.
‘Where there is interest in global funds, it has been heavily focused on ESG, which is well suited to a global approach and which is proving resilient, even in times of significant investor nerves,’ explains Glyn. ‘Having only recently begun to join the mainstream, ESG funds are catching up on assets under management so they can enjoy inflows at the expense of more established categories in times of investor nerves.’
Calastone adds that no month in more than three years has seen outflows from ESG funds. The firm has analyzed more than 1 mn buy and sell orders every month since January 2015.