Bringing you live news and features since 2006 

Edward Glyn, Calastone

Plunging investor confidence pushes August UK fund flows to near three-year lows, says Calastone


Flows into UK-based funds slumped to their second-lowest level in three years in August, according to the latest Fund Flow Index (FFI) from global funds transaction network Calastone.

Across all asset types, inflows were down, or there were outright outflows. As a result, UK investors added just GBP640m to their holdings, well below the long-run GBP2.4 billion net monthly inflow. Over the last three years, only December 2018, when tumultuous stock markets were rocked by the intensification of global trade tensions, has seen weaker figures. The low level of inflows had nothing to do with the summer holiday season either, as the total volume of trading was well above the average for the year-to-date and for the last few years.
Equity funds were hit hardest. They saw investors sell down GBP525 million of their holdings, while real-estate funds suffered their biggest outflows of the year so far, losing GBP334 million. Even fixed-income funds, which have benefitted strongly all year from a flight to safety saw net inflows drop by over 80 per cent month-on-month, down to just GBP211 million, although that still meant they accounted for one third of all inflows, well above their long-run share of the total. The Calastone all asset FFI fell to 50.8, barely above the neutral 50 mark.
Among equity funds, UK-equity funds were easily the hardest hit, accounting for three-fifths of all the outflows. GBP306 million fled the sector as investors shunned increasingly cheap UK valuations in growing alarm at political developments in the country, and as the economic news darkened. The government’s decision to suspend Parliament which some argue was intended to head off MPs’ attempts to prevent a no-deal Brexit caused a spike in activity. One quarter of the month’s net selling in UK equity funds coincided with the announcement, on a day when most other kinds of equity funds enjoyed modest inflows. Separately, the inversion of the UK yield curve sparked one fifth of the month’s outflows.
UK Equity was just 46.3 for the month, well below the neutral mark. Equity income funds, whose assets are largely invested in UK shares too, saw a further GBP273m of outflows, the 28th consecutive month that money has left the sector. European equity funds shed GBP230 million. Global funds and those focused on North America enjoyed modest inflows from bargain hunters making the most of down days for the financial markets and looking for somewhere to switch to.
Political events in the UK are hitting real-estate funds too, as are growing fears of a recession. August’s GBP334 million outflow was the second-worst month for property funds ever, and marked a record 11th consecutive month of outflows. Investors have now withdrawn GBP2.0 billion from these funds since last October. Outflows almost tripled when the government sought royal assent to prorogue Parliament, compared to the previous two-week average. The FFI: Real Estate fell to an extremely negative 28.9.
The flood of UK capital into funds domiciled within the EU remained strong in August. While UK-UK funds inflows of GBP640m across all asset classes were three-quarters below their post-referendum average in August, UK-offshore funds enjoyed GBP1.6 billion of inflows, only a tenth below average over the same period.
Edward Glyn, Calastone’s Head of Markets, says; “Confidence is ebbing away, and investors are voting with their feet. Only the lowest risk categories of funds saw inflows in August. Even though equity outflows were a little smaller than in July, they were still strongly negative, with UK assets suffering the worst. UK political risk now combines with economic risk, so almost no matter how cheap UK asset valuations become relative to peers elsewhere, there is little appetite to buy them. The inversion of the UK yield curve, which signals the possibility of recession ahead, has only intensified concern. The flow of funds offshore expresses a further dimension of aversion to the UK – this is not about the asset classes those funds are invested in, but more about investor concerns over how the UK regulatory environment will handle the disruption caused by Brexit.
“Fixed-income funds have been benefitting from the flight from risker assets, but the sharp drop in inflows in August is an acknowledgment that even this perceived safe haven may not protect capital when bond prices are so high and yields in some parts of the world negative, including at the long end of the curve.”

Latest News

Raymond James Investment Management plans to launch an ETF product platform in 2025 to support strong client demand in alignment..
Aniket Ullal, Director of ETF Data and Research at CFRA Research, has written a note looking at ETFs with exposure..
Tradeweb reports the following data derived from trading activity on the Tradeweb Markets institutional European- and US-listed ETF platforms...
iShares writes that its assets under management have reached USD4 trillion. The firm says this comes off the back of..

Related Articles

Scott Kefer, VictoryEx Capital Holdings
Bailey McCann writes that active ETFs are capturing investor interest, according to the latest data from Morningstar, which finds that...
Chris Lo, Columbia Threadneedle
In a recent insight on India by Columbia Threadneedle Investments, the firm reports that the country’s economic reforms, which aim...
With an election on the horizon in the United States a group of ETFs is poised to capture investments on...
Robot worker
Qraft Technologies, based in South Korea, specialises in the use of AI in security selection and portfolio construction....
Subscribe to the ETF Express newsletter

Subscribe for access to our weekly newsletter, newsletter archive, updates on the site and exclusive email content.

Marketing by