UK investors added over £2bn to equity funds over January, the highest level since April 2021, according to Calastone’s Fund Flow Index.
The £2bn was the eighth strongest month for equity inflows on record since Calastone began recording the data nine years ago, and was credited to a “distinct surge in buying interest”, as buy orders jumped by a sixth compared to the monthly average in 2023.
US equity funds saw record inflows, gaining £1.4bn, while European equity funds had their third-best month on record with inflows of £471m, as investors judged that the current weakness of the European economy was already priced in.
However, China and the UK continued a long running trend of poor performance, with Asia-Pacific funds seeing their ninth consecutive months of losses at £211m, while UK equity funds saw outflows accelerate to £673m, worse than the average £649m throughout last year.
“Doom and gloom over the UK stock market seems firmly lodged in investors’ minds,” said Edward Glyn, head of global markets at Calastone. “UK equities are exceptionally cheap by historic and international comparisons, but buyers are nowhere to be found.”
ESG funds enjoyed a sudden resurgence, seeing record inflows of £1.6bn after months of outflows reaching as high as £3.7bn. However, Glyn said it should be “treated with caution” after just one month of rebound and it was too soon to call it a new trend.
Inflows to money market funds slowed to a trickle after months of strong buying, totalling £56m, only a seventh of 2023’s average monthly inflows.
Meanwhile, property funds saw outflows accelerate, with investors withdrawing £72m from them throughout the month, as buy orders for the funds remain “extremely suppressed” at only £28m. This is only an eighth of the average monthly value in the years before the pandemic.
Glynn added: “Interest-rate bulls are creating the financial weather right now. The markets are convinced that disinflation will bring rate cuts earlier and faster than previously expected, especially in the US.
“This has driven an equity market rally, particularly among the US tech stocks whose share prices benefit most from lower bond yields. Inflows have surged as a result.
“The flipside is evaporating inflows to cautious money market safe havens. Central banks keep trying to dampen expectations of early rate cuts, but they are struggling to land the message with the markets.”