Equity fund investors start to abandon ship due to escalating evaluation worries

In the tumultuous world of global finance, the month of August saw a significant shift in investment patterns, with UK investors withdrawing a total of £1.3bn from equity funds. This marked the worst month of outflows from equity funds since August 2022, according to recent data.

The poor performance of UK equities has been attributed to weak investor sentiment, influenced by the repercussions of Brexit and, more recently, mixed reactions to the October 2024 Budget. UK-focused funds continued their poor run, with investors withdrawing £653m last month, following a similar trend seen in July where £1.13bn was withdrawn.

However, it's not just UK-focused funds that have been affected. Global equity funds recorded their third consecutive month of outflows in August, with investors withdrawing £658m. This trend contrasts with the inflows seen earlier in the year.

On the other hand, investors moved £633m to money-market funds, marking the strongest performance of inflows in two years. The strong inflows to money-market funds suggest investors are seeking safe havens, a trend that Glyn, a financial analyst, attributes to investor hesitancy and a desire for confidence that yields won't continue "surging after they've bought in".

Despite the persistent trend of outflows from equity funds, Glyn believes the shift away from global equity funds will not be permanent. He states that global funds save investors from having to pick regional winners, a strategy that can be risky in volatile markets.

The inflows to fixed income funds in August contrast with the outflows seen earlier in the year. This year to date, fixed income funds have shed £628m, primarily from the sovereign bond sector. However, falling prices caused by rising longer-dated yields in the bond market have made fixed income funds more tempting, leading to the recent inflows.

Some analysts expect UK stocks to regain momentum over time, with global macroeconomic models forecasting the main UK stock index (GB100) to be traded near current or slightly lower levels in the near term. This reflects cautious optimism about moderate growth. However, explicit individual analyst names or detailed public debate positions on this outlook are not identified in the search results.

Outflows from UK equities have been a persistent trend, with the UK being the least favoured equity sector for all but two of the last 51 months. Despite this, Glyn remains optimistic, suggesting that the current trend may not be indicative of a long-term shift away from UK equities.

In conclusion, the month of August saw a significant shift in investment patterns, with UK investors withdrawing funds from equity funds and moving towards safe haven investments like money-market funds. While the outlook for UK equities remains uncertain, some analysts remain optimistic about the potential for recovery in the near future.

Equity fund investors start to abandon ship due to escalating evaluation worries