Equity funds experienced their first monthly outflows since October 2023 this September, as investors withdrew a net £564m, ending nearly 10 months of record inflows, according to Calastone's latest fund flows report.
Most of the negativity was concentrated in the UK, where investors pulled a total of £666m from domestically-focused funds.
The reasons, according to Edward Glyn, head of global markets at Calastone, include the new government’s “rather pessimistic commentary about the UK economy, which appears to have put a stop to the nascent revival in interest in domestic equities that we first detected in trading data in July.”
Lacklustre performance didn’t help; the FTSE 100 ended last month slightly down, while UK small and mid-caps indices remained static in September.
Global equity income funds shed £416m and outflows from specialist sector funds accelerated to a record £512m. Here, gold-focused and sustainability-minded funds were particularly hit.
All other geographies saw decreased inflows in September – lower than August but also below their monthly averages over the year. Following “a slew of negative news coming from the Eurozone”, European equity funds experienced the largest decline in inflows, falling to £43m from a monthly average of £249m over the past year.
Global equity and US equity funds remained popular, however.
The largest outflows were in fixed income, where funds saw a £769m withdrawal – the biggest outflows from fixed income funds during Calastone’s 10-year record, excepting the pandemic crash in April 2020.
Bond markets have rallied over the past six months as prices soared while yields plummeted in anticipation of interest rate cuts.
Selling was concentrated in the first few days of the month, ahead of rate decisions by the UK, European and US central banks, as investors took profits from the bond-market rally.
Glyn said: “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.”