ISA season breaks new record despite UK outflows revealing ‘structural problem’

April was a record ISA season, with inflows to equity funds coming in five times larger than 2023, but represented another poor month for UK-focused funds, according to data from Calastone.

UK investors added £1.9bn to equity funds and £422m to fixed income funds throughout the month, but in the 35th consecutive month of outflows from UK equity funds, pulled £665m from them.

Charles Hall, head of research at Peel Hunt, warned that the data showed “exactly why the UK market has a structural problem”.

“This is a core driver for the underperformance of UK equities, the low valuations, the relentless M&A and the paucity of IPOs,” he said.

£21bn has been pulled from UK equity funds by investors over the last three years, with Hall arguing that the data showed that “we need pension funds to increase allocation to the UK, a UK ISA and removal of stamp duty to ensure that our market is competitive with overseas exchanges”.

However, this was still the best ISA season on record for Calastone, with equity funds bringing in £5.2bn between 15 February and the end of the tax year, more than five times as much as 2023.

More than half the month’s inflows to equity and fixed income funds took place in the first five days of April, before the 2023/24 tax year ended.

While overall equity fund flow continued to be strong in April, it largely went towards US and global funds, with the two gaining £1.3bn and £1.5bn respectively.

This was the fourth best month on record for North American equities, with the previous three best months also all in 2024, while global funds saw their best result since April 2023.

European funds were another beneficiary, bringing in £471m in new money, their third best month on record.

Emerging markets also saw a surprising turnaround, registering their first net outflows in 19 months, as investors sold £162m from the funds.

Meanwhile, property funds failed to capitalise on the strong ISA season, losing £12.4m in the first week of April, while outflows for the whole month totalled £54.8m.

The balance of sell versus buy orders remained strongly in favour of sellers. For every £1 of selling, there was just 42p of buying.

April’s net selling means property funds have only seen one month of net inflows in the last five and a half years.

Edward Glyn, head of global markets at Calastone said: “Until September 2018, property flows behaved like any other asset class, tracking investor sentiment and the wider economic dynamic.

“Since then, property as an asset class has itself has suffered a series of blows with the pandemic changing demand patterns, rising interest rates compressing valuations and economic stagnation impacting occupancy – that has all affected investor sentiment of course.”

“Buyers are scarce because returns are diluted by the need for funds to hold a lot of cash to meet redemptions, and they are put off by the spectacle of funds selling good assets to raise liquidity.”