UK investors displayed resilience in April, defying market volatility as they bolstered their fund holdings, according to Calastone’s latest Fund Flow Index.
The report indicated a net addition of £1.93 billion to equity funds and £422 million to fixed income funds, with mixed asset funds witnessing their first month of inflows after eleven consecutive months of net selling.
The surge in equity fund inflows during April was driven in part by the record Individual Savings Accounts (ISAs) season – the period before the end of the UK tax year on April 5, marked by a surge in contributions to ISAs as investors aim to maximise their tax-free savings allowance before it resets for the new tax year.
Appetite for bond and equity funds surges on anticipation of rate cuts
Inflows to equity funds during this period were five times larger than in 2023, indicating heightened investor activity and confidence. Investor preferences within the equity space reflected a discerning approach, with funds focused on global, North American, and European markets garnering favour, while interest in emerging markets and UK-centric funds waned. Index funds continued to dominate inflows, maintaining a trend observed over the past sixteen months.
North American equities attracted substantial investment, with net inflows reaching £1.25 billion, the fourth highest on record. Similarly, global and European equities experienced significant inflows, showcasing investor optimism in these regions. However, emerging market funds witnessed net outflows for the first time in eighteen months, while UK-focused equity funds continued their streak of consecutive monthly outflows.
Fixed income ETFs see “subdued” inflows in February
Fixed income funds attracted inflows despite challenging market conditions, characterised by rising bond yields. This resilience underscores investors’ confidence in the asset class despite short-term fluctuations. Conversely, money market funds experienced net outflows for the first time since January 2023, signalling a shift towards riskier investments amid high yields.
Overall, UK investors exhibited a proactive stance in diversifying their portfolios and navigating market dynamics, indicating a continued appetite for investment despite prevailing uncertainties.
Edward Glyn, head of global markets at Calastone, said: “Inflows may have slowed a touch, but they are still well above normal levels as investors chase stock prices – the outflow from money market funds is part of this trend.
Meanwhile, inflows to bond markets show that steady and accumulating losses are not deterring new capital – this is not unreasonable as there are substantial gains to be made when interest-rate expectations turn a corner and high yields mean investors can lock in historically high income levels now for the long term.”
The current ISA season has been the best on Calastone’s nearly 10 year record, he added.
