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Equity funds pummelled as turmoil sparks record UK investor outflows

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Turmoil in global markets prompted a new record flood of capital out of equity funds in September, according to the latest Fund Flow Index from London-headquartered global funds network Calastone.

The GBP2.36 billion net monthly outflow beat the previous record set in August by more than 20 per cent and takes the net flight of UK investors from equity funds to GBP6.63 billion since the bear market began in January.

During the third quarter, the outflow reached UKP4.70 billion – comfortably more than in the whole of 2016, which was previously the worst year in Calastone’s eight-year record of monitoring investor fund flows.

Investors continued to pummel funds focused on UK equities. These saw net selling of UKP694 million – the sixteenth consecutive month of net outflows, a longer stretch than for any other major equity fund category.

“Until this year, September’s outflow would have marked a record for UK-focused funds, but sentiment on UK assets has been so negative recently that it only ranked sixth,” said the firm in a statement.

Every other geography saw significant outflows too. Among the most notable, US equity funds had their worst month on record (beating August’s record outflow), shedding a net UKP497 million of capital.

Calastone said the strains caused by the extreme strength of the US dollar and the sharp economic slowdown in China drove a record UKP116 million of net outflows from emerging market funds and UKP223 million from Asia-Pacific (second only to August’s record).

The index also shows active funds seeing increased investor flight. “Active equity funds had proven relatively resilient for most of 2022, with either lower net outflows or higher net inflows each month than their passive counterparts,” said the firm. “But in the past two months the pattern has reversed. Active funds were hit with record net outflows of UKP1.89 billion in September compared to UKP472 million from passive funds.”

The only equity category to see inflows was specialist sector funds, especially those focused on infrastructure and renewables. Sector funds enjoyed inflows of UKP91 million, taking the net total to UKP3.5 billion over 23 consecutive months of inflows.

The flight from risk was seen in other asset classes too. Property funds suffered UKP89 million of outflows while mixed assets funds shed a record UKP740 million. Inflows to fixed income funds slumped to UKP72 million – turning sharply negative in the last week of September, in the wake of the market’s savage reaction to UK Chancellor Kwasi Kwarteng’s disastrous mini-budget.

“The surge in global bond yields is driving a dramatic repricing of assets of all kinds,” said Edward Glyn, head of global markets at Calastone. “UK investors are voting with their feet and heading for the exits. Meanwhile, the near-permanently frosty attitude towards UK assets shows no sign of thawing.”

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