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Asset managers have launched the lowest number of funds for UK investors in two decades, as higher living costs and interest rates have prompted investors to move out of investment funds.
Some 397 funds started in the UK in 2023, according to data from Morningstar, down a quarter from the number of a year before, and far below the most recent peak of 899 in 2010. This marks the lowest number of launches since 2003, when markets were reeling from the dotcom crash.
UK investors have fled funds, unsettled by volatile markets and lured by the high returns on offer from cash products as interest rates hit their highest level in a decade.
“The regime shift in inflation and rates is impacting how investors think about their portfolios, with many clearly allocating to cash investments as a result,” said Doug Abbott, head of wealth UK client group at Schroders.
Money has been flooding out of funds in the UK in recent years as soaring inflation and the rising cost of living have pushed retail investors to raid their investment pots — 2022 was the worst on record, with £50bn redeemed on a net basis from funds. Retail and institutional investors pulled a further £37bn in the 10 months to October 2023, according to data from the Investment Association.
The outlook for the investment management sector has deteriorated alongside this as the impact of the outflows on asset managers has been compounded by investors’ flight to passive funds, a downward pressure on fees and rising regulatory costs.
This has led to a range of cost-cutting and bulking up by these companies in an attempt to shore up the businesses. Jupiter’s chief executive Matthew Beesley is restructuring the group to try and revive growth, and in December, Abrdn slashed employee benefits in its latest round of cost cuts as it battles to contain expenses and investor outflows.
Although UK inflation is falling, dropping from 6.7 per cent in September to 3.9 per cent in November, the potential for a different global environment over the next few years means investors would be sensible to allocate their portfolios across a range of asset classes, Abbott added.
“The long-term structural trends of demographics, deglobalisation and decarbonisation all point to inflation remaining higher than it has been for the last decade and long-term investing will be critical.”
