Optimism for the UK, particularly following the country’s general election, saw outflows from UK-focused equity funds shrink to their lowest level in three years.
Outflows stood at £207 million in July – the lowest monthly level since a three-year outflow trend began.
The day after the Labour government won the election also saw £59 million inflows into UK-focused equity funds.
Meanwhile, net flows to all equity funds were positive, at £2.19 billion in July – a record seven months for inflows since January, with North American and emerging market equity funds seeing the strongest inflows.
The £424 million of inflows to emerging markets set a monthly record for those funds, according to Calastone, which publishes a monthly Fund Flow Index.
Money market funds had their best month of the year (+£432 million) and fixed income funds, said to be buoyed by hopes of rate cuts finally arriving, saw inflows return (+£84 million) after two months of net selling. Meanwhile, property funds had their “least bad” month since September 2023, with outflows of £19 million.
Edward Glyn, head of global markets at Calastone said the inflows to UK-related equity funds was an improvement “consistent with the groundswell of positive commentary surrounding the investment case for UK equities”.
He said that growth indicators suggest the UK economy is outperforming its peers, while the arrival of a new government with a huge majority is in “stark contrast to today’s political turmoil in many other major G7 countries” and in the UK’s recent past.
Glyn also said that wider market factors were also at play. “The last few weeks have also seen a significant rotation from very expensive US large-cap stocks to cheaper small- and mid-caps. This same trend benefits markets such as the UK which are trading at a significant discount to international peers.”
Noting that UK households are sitting on a record £1.8 trillion of cash deposits, but also speaking before the stock market rout this week, he added: “The big question now is whether momentum can grow enough in the coming months for UK-focused funds to see buying outweigh selling for the first time in years.”
