UK equity funds suffered £1bn net outflows in January despite the FTSE reaching record highs, according to Calastone’s Fund Flow Index.
After adding to equity funds over the closing months of 2024, investors began 2025 by pulling a net £640m from the asset class.
Alongside the UK, European funds saw net selling of £265m, though enthusiasm for the US remained with North American equities pulling in a net £576m. Asian funds also recorded net outflows.
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Edward Glyn, head of global markets at Calastone, said: “UK fund investors seem to have given the government’s fretful growth narrative a clear thumbs down. The UK stock market reached all-time highs in January, but investors merely took this as an opportunity to get out while the going was good.
“Meanwhile, political instability and increasing anxiety about the economy have put Europe back on the sell list after a strong 2024 for inflows driven by rising share prices.
“Apparently nothing can dent the enthusiasm for US stocks, however. Even the DeepSeek AI shock that happened late in the month spurred appetite rather than fear. The day after technology companies saw $1trn wiped off their market value, North American equity funds had their best day of the month with £167m of net inflows.”
Investors also pulled £425m from ESG funds in January. Active managers suffered a £1.4bn net outflow, while a net £780m went into passives.
Fixed income
Over the month, investors bought fixed income funds as yields rose and prices fell, before selling when the market rallied. As a result, bond fund net inflows fell by two thirds month-on-month to £267m, their weakest month since September.
Sovereign bond funds saw the biggest drop-off in interest inflows fell by almost 90% to £41m.
Glyn added: “Bond markets had a terrible start to 2025 with yields on benchmark US Treasuries and on UK gilts surging to their highest level since before the Global Financial Crisis (bond prices fall when yields rise).
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“Investors bought into this market decline in the first half of the month – enabling new capital to lock into these ultra-high yields, before turning net sellers as calm returned.
“This is a pattern we often see in the millions of trades Calastone processes every month. Bond yields remain high, with the outbreak of an inflationary trade war potentially keeping them at elevated levels.”
This story was written by our sister title, Portfolio Adviser
