According to the latest data on investment fund flows, UK savers are still opting for globally exposed equity funds as they seek better returns in a challenging climate for UK funds.
Although net outflows from UK equity funds slowed slightly in March, they totaled around £835m, according to the Investment Association (IA), a trade body. This followed a year in which savers withdrew £12bn from UK-focused funds.
Outflows from UK funds in March were accompanied by £653m of inflows to global funds, while AI data also showed that near-term money market funds during the same period it had net retail sales of £667 million. The latter reversed a four-month trend of outflows, with inflows previously peaking in the Kwasi Kwarteng “mini” budget period.
“Investors are looking for better returns than the UK market is offering and has consistently delivered,” said Sam Benstead, deputy director of collectives at Platform Interactive Investor. He said investors perceive the US as a convenient “one stop shop” for their money.
Benstead added, “The real difference is that the US has bigger, better, more focused companies.”
The continued pullbacks reflect investor concerns about the UK economy and changes in the regulatory environment as officials and industry leaders attempt to make the UK an attractive place to invest.
The Financial Conduct Authority this week make plans simplify the rules to entice companies to list in the UK. This included proposals to remove mandatory shareholder votes on takeovers and to be more accommodative on dual-class securities, share classes that carry different voting rights.
Claire Madden, managing partner at Connection Capital, which advises private markets investors, said the UK was “just too uncertain” for investors. You said the two main political parties were unclear about the future of taxation and investors did not feel adequately incentivized to invest in UK companies.
FCA’s proposals are part of a debate over the competitiveness of UK capital markets, which this week prompted London Stock Exchange chief executive Julia Hoggett to askconstructive discussionon executive pay to make the UK a more attractive base for well-paid companies and CEOs.
Madden added, “Companies list to access public capital markets, if there’s no capital flowing into the market from investors, the whole thing is illiquid and the attraction isn’t there.”
UK-focused equity funds have seen net outflows of more than £1bn each month since the start of the year. This represented an acceleration in withdrawals from last year, even as retail investors did funds withdrawn each year since the 2016 Brexit referendum.
However, in the first quarter of the year, UK investors invested £4.1bn in other types of funds, including fixed income and mixed assets, seeking to maximize tax-free packages in view of halving the capital gains deduction a year. £6,000 from April 2023.
Separate and more recent data from Calastone, which captures both retail and professional investors, showed April marked the 23rd consecutive month of net outflows from UK equity funds, totaling around £13.86bn. pounds from June 2021.
Calastone’s data showed the bulk of £1.58bn in new investment was in global funds, although emerging market funds also saw a boost due to a “weakened dollar and lower valuations than developed markets .
Edward Glyn, head of global markets at Calastone, said investors were focusing on North America, but warned “company profits are under pressure and much uncertainty remains about the likelihood and severity of any potential economic downturn.”
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