Equity inflows: UK investors most bullish in three years

UK investors were at their most bullish in three years last month, as they poured £2.7bn into equity funds throughout February.

Monthly equity fund inflows were their fourth best since the Calastone Fund Flow index began nine years ago.

This is the fourth consecutive month of inflows for equity funds, following an 18-month streak where investors pulled a total of £8.6bn.

Money went largely to equity funds that invest in North America, which received £2.5bn, with £1.9bn committed to American ESG funds in particular.

Edward Glyn, head of global markets at Calastone, said the tech rally in the US explained the success of ESG funds, as tech is heavily represented in these.

“Risk is back on with a vengeance. Investors are going cold on safe havens and jumping back into equities feet first,” he added.

For European funds, all of the new cash into equity funds went to ESG funds, which gained £363m, while non-ESG European funds saw a small outflow.

A mixed picture for ESG equity funds worldwide meant total inflows of £1.5bn for ESG funds, though this was still the fourth-best month on record after January’s all-time high.

Investors continued their long-running disdain towards the UK, pulling £633m from British-focused equity funds, in line with the average over the last couple of years.

“The UK stock market has notched a touch higher over the same period, but nothing can persuade UK investors to add capital to their home market, despite very low comparative valuations,” said Glyn.

Within other asset classes, fixed income had their best month since June 2023, gaining £329m, while money market funds attracted £78m in new money.

Meanwhile, property funds suffered £76m of outflows throughout February, with Glyn noting that since October 2018, the sector had seen only three months of inflows, compared to 62 months of outflows.

In most other asset classes, the net fund flow is a small difference between a large volume of buy and sell orders. But this is not the case with property funds, for which buyers are very thin on the ground. Last month, sell orders totalled £108m but buying was just £32m.

Glyn added: “It is increasingly difficult to see where this trend of outflows ends for open-ended property funds. Trading restrictions have failed to staunch the bleeding and arguably may have made the situation worse by undermining confidence in the sector.”