The first six months of the year saw UK investors bet big on markets and make record deposits into equity funds, with £1.7bn added in June alone.
UK investors added a total of £11.4bn to equity funds in the first half of 2024, the highest on record, spurred on mainly by the popularity of North American focused funds, which brought in £7.8bn in new cash alone, according to data from Calastone.
Despite this, June was a rare exception for North America funds, as investors actually withdrew £600,000 from them throughout the month, after consistently adding hundreds of millions to them monthly.
Meanwhile, outflows from UK-focused funds slowed moderately from their record highs in May, though investors still cashed out £522m from their UK-focused equity holdings.
“This is the least worst month of 2024, but that’s not much solace as we have now seen 37 consecutive months of outflows,” said Charles Hall, head of research at Peel Hunt.
“The new government will need to make this a priority if we want to have an equity market that provides growth capital to UK companies.”
So where are UK investors putting their money? Everywhere other than the US and UK. Global equity funds netted a total £1.4bn in June, while Europe-focused funds brought in £714m.
The new government will need to make this a priority if we want to have an equity market that provides growth capital to UK companies.
Charles Hall, head of research at peel Hunt
Emerging markets also returned to net inflows for the first time in three months, with investors adding £269m to them in June.
Another key beneficiary was money market funds, bringing in £247m throughout the month, after April saw the only month of negative flows for them since January 2023.
The fall in popularity of North America funds also caused ESG-focused funds to take a hit, falling into net outflows for the first time since December as UK investors withdrew £179m in cash from the sector.
Bond funds also witnessed outflows throughout the month, despite a greater optimism on the prospect of interest rate cuts.
UK investors pulled £471m from bond funds in June, taking the two month total withdrawn to a whopping £1.1bn.
And as usual, property funds continued to see investors flee, withdrawing £48m from the sector, though this was slightly below the average over the last two years of £51m a month.
Assets in the property sector are down to around £15bn, just one per cent of all UK funds, compared to three per cent in 2016. Since 2016, the sector has seen outflows over £7.6bn.
Edward Glyn, head of global markets at Calastone, said: “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, 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.”
