UK investors are putting billions of pounds into offshore funds as a result of Brexit uncertainty, data suggests.
Since June 2016, a cumulative £53.1 billion (€60.7 billion) has flowed offshore, according to Calastone, which based the figures on fund orders across its transaction network.
The firm handles two-thirds of UK fund orders each month by value and says its newly launched Fund Flow Index (FFI) currently displays UK investor sentiment at its lowest level since just after the 2016 Brexit referendum.
Institutions are leading the “concerted shift” towards offshore funds, the firm said, although wealthy investors are also significant.
In the year prior to the vote, a monthly average of £150 million was sent offshore – but that figure now stands at an average of £1.9 billion.
Similarly, a version of the FFI that tracks offshore flows registered an average of 50.5 points from the beginning of 2015 until May 2016, meaning there were almost no net flows offshore. But since June 2016 the figure has risen to 55.8 points as offshore flows increased.
Calastone said less than half as much money is likely to flow into UK-based funds in the second half of the year compared to the same period last year.
In October, only a net £1.1 billion flowed into funds – just a third of the year-to-date average – and trading volumes were unusually high.
The index suggests risk aversion has risen sharply after an October reading of 51.6 points (50 means inflows equal outflows and a reading below 50 indicates inflows).
Equity funds saw inflows of just £198 million and inflows into global funds “dried up altogether” after consistently being the most popular equity category since early 2016.
European funds saw outflows of money as the Italian crisis escalated, but relatively undervalued UK equities, which investors have avoided altogether since the Brexit referendum, saw inflows of £244 million.
Buying of UK equity funds began during the October EU summit, as investors became more optimistic on a Brexit deal, Calastone said.
Edward Glyn, Calastone’s head of global markets, said: “The sea change in appetite for offshore funds is clearly linked to Brexit: the expected loss of passporting for the UK’s financial services industry, coupled with uncertainty about the UK’s regulatory future, and nervousness about Britain’s unstable political situation, have driven investors to move capital outside the country.”
But he added: “This is not a rout.”
Even during the huge market disruption in October, there was opportunistic buying on down days, said Glyn, and fund flows overall remained “structurally positive, as investors build their savings over the long term to meet their future needs”.
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