In February 2024, UK investors displayed a robust appetite for equity funds, marking the the highest inflow since May 2021, according to data provider Calastone.
The month witnessed an addition of £2.66 billion to equity holdings at the fastest rate in almost three years and the fourth strongest on Calastone’s nine-year record.
According to the data provider’s latest fund flow index, after a challenging eighteen-month period that witnessed £8.60 billion exit equity funds, the recent four-month streak of inflows totalling £6.31 billion indicates a growing investor confidence in a buoyant stock market.
Calastone’s Edward Glyn on the Global Automation survey
Despite the overall positive trend, inflows are notably concentrated, with a significant portion directed towards North American equity funds. A record £2.54 billion flooded into these funds, with three-quarters of that allocated to American ESG funds.
Additionally, European equities saw a boost of £363 million, exclusively flowing into ESG funds, while non-ESG European funds experienced a slight outflow. Overall, February saw a healthy influx of £1.54 billion into ESG funds.
The resurgence of interest in ESG funds, following a period of outflows in 2023, contributed to February’s robust inflows, making it the fourth-highest month on record after January’s all-time high. While global equity funds also experienced strong buying, the focus was primarily on non-ESG-labelled funds.
Conversely, Asia-Pacific funds experienced their third-worst month on record, shedding £229 million, while UK-focused equity funds sustained ongoing outflows, with investors withdrawing £633 million, in line with recent trends.
In terms of other asset classes, money market funds witnessed inflows of £78 million, slightly up from January but well below the monthly average of £400 million seen in 2023.
Fixed income funds, however, had their best month since June 2023, attracting £329 million in new investments, aligning with the category’s long-run average.
Mixed asset funds remained unpopular, while property funds continued to face structural outflows as the property investment landscape shifted away from open-ended wrappers.
Luxembourg-domiciled ESG funds reach €2.8tn in assets
Edward Glyn, head of global markets at Calastone, commented: “Investors are going cold on safe havens and jumping back into equities feet first. The US stock market has soared by a fifth since late October, driving accelerating fund inflows ever since. The rally has been driven by technology stocks in particular. These are heavily represented in ESG funds which may help explain why we are seeing such a surge of interest in US funds in this category.
Fears both that inflation may prove too sticky and that spendthrift governments simply haven’t got the will to curb their deficits have pushed yields back up in recent weeks – and bond prices therefore down. These higher yields are bad for equity valuations but they haven’t touched the sides of the bull run.”
