Investors pulled out record amounts of cash from UK-focused equity funds in 2022 as markets took a bearish view on the state of the economy, which is expected to be among the worst performing in the rich world this year.
UK equity funds suffered outflows of £8.38 billion, the highest on record and underperforming peers in the US and Europe, according to fund-flow data from Calastone. Broader equity funds recorded outflows of £6.29 billion, but while money returned to some sectors towards the end of the year, investors continued to shun the UK.
Outflows were recorded in every month of 2022 for British-focused equity funds, making it the second year of negative flows. July was the worst month, when nearly £1.3 billion was pulled out, coinciding with the US Federal Reserve unleashing its largest rate rise in nearly 30 years.
International investors also sold a record £38.4 billion of UK gilts in the three months to November, when the country was hit by political and market turmoil caused by Liz Truss and Kwasi Kwarteng’s mini-budget.
Global stocks and bonds have suffered from an environment of rising interest rates, lower global growth and the impact of the war in Ukraine on energy and food supplies. Calastone figures showed £2.65 billion of outflows from European funds last year, and £1.17 billion from North American focused funds.
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Inflows were recorded in the final quarter of 2022 into equity and bonds funds, amid hopes that central banks were coming to the end of their monetary policy tightening. “Equity funds overall saw £381 million of inflows in December, however investors still refused to touch UK-focused equity funds,” Edward Glyn, head of global markets at Calastone, said.
He added: “The expectation that the UK economy will suffer the worst recession among major economies has prevented the current burst of optimism spreading to UK-focused funds. Investors have sought out the safest havens they can find, taking refuge in cash and the perceived lower risk fund categories.”
Britain’s economy is on course to be the slowest growing among the G7, and is expected to be in recession for most of this year. Growth fell negative in the third quarter of 2022, caused by double-digit inflation, rising interest rates, and the household cost of living crisis.
