UK investors added £1.72 billion to their equity fund holdings in June, extending a “remarkably strong” few months of inflows, according to the latest Fund Flow Index from Calastone, a global funds network.
However, in June inflows to North American equities funds – which, along with global funds, drove flows in the first half of the year to a record – “abruptly dried up”, and this impacted ESG.
Five of the fifteen best months on Calastone’s record have been in 2024 and the first half of the year was a record six months for equity fund inflows, which reached £11.39 billion.
Global equity funds were June’s most popular category, with a net £1.36 billion, while European equities absorbed a net £714 million.
ESG funds had recently enjoyed their best few months since 2021 after a protracted spell of divestment. Investors added £5.10 billion between January and May thanks to strong buying of US ESG funds which are heavily weighted to the big technology names like Microsoft and Nvidia, said Calastone.
In June, however, investors tipped into net selling of ESG funds for the first time since December, withdrawing £179 million of cash from the sector.
The “evaporation of interest” in US ESG funds in June meant ongoing outflows from UK-focused ESG funds in particular made the most negative contribution and helped pull the overall figure into net selling.
Elsewhere, emerging markets saw inflows return after two months of net selling. Investors added £269 million in June, almost entirely favouring global emerging market funds.
Bond funds saw outflows despite greater optimism on rate cuts – perhaps because equities are more favoured
Property funds continued to shed investor capital – a net £48 million flow from the sector in June. Meanwhile, money-market funds attracted significant inflows, despite the probability of interest rate cuts on the horizon, said Calastone.
Edward Glyn, head of global markets at Calastone said: “All eyes are trained on the world’s central banks, looking for signals that long-awaited rate cuts from the Fed and the Bank of England will follow those like the ECB, Swiss National Bank and the Bank of Canada which have already begun to bring the price of money down.
“Hopes for cheaper money after the painful rate squeeze of the last two-and-a-half years are the clear driver of record flows into equity funds so far this year. The US market valuation is not cheap, however, and this means investors are hoping that earnings growth will deliver, as the prospect for multiples to expand further is surely limited at present.”
By contrast, Glyn said, large markets such as the UK and Europe are trading on less challenging valuations, while many emerging markets are set to benefit from the weaker dollar and a nascent commodity boom.
