UK investors added a net £2.30 billion to their equity fund holdings in March, contributing to a “record-breaking Q1 2024” for equity-fund inflows, amassing £6.97 billion since January.
According to the latest Fund Flow Index (FFI) from funds network Calastone, the surge in investment was concentrated, with North American funds emerging as the primary magnet for UK investor capital, absorbing an unprecedented £5.72 billion in Q1 alone, a threefold increase from the previous best quarter.
Equities outlook 2024: Key themes and macroeconomic trends
The past four months have witnessed more UK investor cash flowing into North American equity funds than in the preceding nine years combined, underscoring a shift in investment strategy towards transatlantic markets.
While North American funds stole the spotlight, global equity funds and emerging markets also experienced robust inflows, although European funds saw a slowdown in comparison.
Within the UK, however, the enthusiasm for domestic equity funds waned, with outflows reaching their highest levels since February 2023, marking 34 consecutive months of net selling. The first quarter saw a substantial £2.13 billion exit from UK equity funds, marking one of the poorest quarters on Calastone’s record.
ESG equity funds witnessed a slower but sustained influx ((£691m), indicating a growing interest in socially responsible investing. Nevertheless, March saw non-ESG equity funds attract larger inflows ((£1.61bn), highlighting a diverse investor appetite within the UK market.
Calastone: High equity prices drive further fixed income flows
Edward Glyn, head of global markets at Calastone, commented: “Global equity markets have surged since the end of October. Japan, the US and Europe have led the charge, all up by more than a quarter and leaving the UK in the dust. UK equities are certainly cheap, but investors worry where the growth is going to come from to drive earnings higher.
Meanwhile, the US earnings recession is over – profits are once again on the up and that seems to be the main catalyst driving fund inflows and higher share prices.”
Fixed income fund inflows surged to their highest level since June 2023, with investors injecting a net £460 million into their holdings. Conversely, mixed asset funds and the property sector sustained outflows.
Glyn commented on the rough start of bond markets in 2024, noting that hopes for rate cuts were deferred. Yields have risen to November levels, enticing investors seeking high income and anticipating potential capital gains with future rate declines.
