Political upheaval in the UK and the sharply rising likelihood of a no-deal Brexit caused a dramatic outflow of capital from equity funds in July, according to the latest Fund Flow Index (FFI) from Calastone.
UK investors rushed to sell their holdings at their fastest rate since October 2016. A net GBP1.3 billion flowed out of equity funds, on the back of record trading volumes, pushing the FFI: Equity down to just 46.1. This was its lowest level in over two and a half years (a reading of 50 means the value of buys equals the value of sells).
The worst impact was felt in funds focused on UK equities, which accounted for about half the total outflow.
Other riskier asset types such as commodity funds, alternatives and real estate also saw outflows. Investors sought out the relative safety of fixed-income, money-market and mixed-asset funds. And the flow of funds offshore surged higher.
Every category of equity fund, except Asia and emerging markets, saw outflows in July, even perennially popular global funds. UK-equity funds were by far the hardest hit, however. GBP410m left the sector, easily the largest outflow in over two and a half years. Investors have recently been adding to their UK-equity fund holdings as MPs voted in the spring to rule out a no-deal withdrawal from the EU. Now no-deal is considered by many to be official government policy, there is a flood of withdrawals from UK-focused funds. The daily trading patterns underline this interpretation.