UK-focused equity and active funds saw more money withdrawn in 2023 than at any time since the record began, according to new data from the Association of Investment Companies.
Total outflows were £24.3 billion, down from the previous year’s £26.9 billion, but only because of strong inflows into passive tracker and money market funds.
UK equity funds saw £13.6 billion of retail outflows while active funds saw £38.1 billion withdrawn as investors turned cautious.
Miranda Seath, the AIC’s director of market insight & fund sectors said: “Investors showed caution, opting for a flight to safe assets in UK gilts and Government bonds, which also saw rising yields in 2023.
“Money market funds came out on top as the best-selling asset class, and investors also opted for low-cost tracker funds, which saw strong inflows of £14 billion.
Meanwhile, equity funds faced a challenging year. UK equities hit a record outflow at £14 billion in the eighth consecutive year of outflows.
Total funds under management were flat at £1.4 trillion as the inflows into passives offset the outflows elsewhere, but any recovery will be predicated by movements on interest rates, said Seath.
“When, how fast and how far Central Banks cut interest rates remains crucial.
“In January, investors took out £1 billion out of funds, however tracker funds continued to see strong inflows at £1.7 billion. It is also an election year in the US, India and UK, and political change could impact the investment outlook.”
Dark age for UK funds
Laith Khalaf, head of investment analysis at AJ Bell, commented: “The UK funds industry is going through a dark age.
“Some £51 billion has been withdrawn from funds by UK retail investors in the last two years.
“Add in institutional outflows and the number rises to £108 billion. The scale of these withdrawals is absolutely unprecedented.
“The pain is not being shared amongst the investment industry equally either. Active managers, and UK equity fund managers, are at the extremely sharp end of proceedings.
“The chancellor hopes to revive the fortunes of UK stocks through a British ISA and a Tell Sid style campaign reminiscent of Margaret Thatcher’s privatisation of British Gas.
“But when it comes to funds, Sid isn’t listening.
“UK equity funds have been in outflows for eight years now and while the government might want to see a U-turn, these latest figures show that UK fund investors aren’t for turning.”
“Part of the problem is that many active funds have not been delivering on their side of the bargain,” he added.
