Record-high stock markets failed to reassure investors in August, as equity funds saw £1.31 billion of outflows, according to fund flow index data from global funds network Calastone.
That made August the toughest month for equity funds since the summer of 2022 and followed another £1.13 billion withdrawn in July.
“Fund investors are wary, clearly fearing a correction is round the corner,” commented Edward Glyn, head of global markets at Calastone. “Outflows in the summer of 2022 reflected a sharp market sell-off driven by central banks raising rates to squeeze inflation, the oil shock from Russia’s Ukraine invasion, and fears of recession (which didn’t materialise). By contrast, this summer, stock markets are ignoring a wide range of negative signals and have continued to reach new highs.
August was the third consecutive month of outflows, an unusually long stretch, as investors top-slice holdings to hang on to strong capital gains this year and park the proceeds in the money markets to wait out the storm they fear. Whether their caution is justified remains to be seen.”
Global equity funds lost £658 million, the third month in a row investors have cut exposure, which, according to Calastone, had rarely experienced even a single month of net selling before June.
UK equity outflows ease, bond demand rises
UK-focused funds also lost £657 million, but unusually, global funds were hit even harder, which has only happened twice in the past eight years.
Money market funds gained £633 million, their strongest month in two years. European equities saw inflows, while Asia Pacific strategies posted their 28th consecutive month of outflows despite strong performance this year.
Investors added £133 million to fixed income in August, reversing July’s £122 million outflows, though the asset class remains down £628 million year-to-date, weighed by sovereign-bond strategies.
Glyn added: “Global equity funds have been the go-to strategy for investors for a decade, almost never seeing outflows, even as capital in other sectors has ebbed and flowed. This has changed markedly in the last three months. This is likely to be a temporary phenomenon, and doubtless reflects scepticism around the sky-high valuations of global mega-cap stocks, especially US tech. Highly-priced US equities enjoy a disproportionately large weighting in global funds compared to profits or GDP, so they don’t offer the diversification benefits they have in the past, but global funds nevertheless save investors from having to pick regional winners and that will doubtless prove attractive again before long.”
“Concerns over equity prices are driving flows into the safest fund category – money markets – especially as longer-dated yields in the bond markets continue to rise, meaning falling prices. High yields are tempting, and if you can lock in at the peak would provide attractive long-term returns, but investors want confidence they won’t keep surging after they have bought in.”
