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Calastone: UK investors pour £2.66bn into equities for February

ESG funds bring in £1.54bn across markets

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Equity fund inflows hit the highest number since May 2021 in February, with UK investors bringing in £2.66bn to the sector, according to Calastone’s monthly flow report.

In the past four months, equities have brought in £6.31bn, following at 18-month stint of a £8.6bn drain from the pot. Almost all the inflows for February went to North American equity funds, bringing in £2.54bn, with £1.88bn into American ESG funds.

European equity funds also pulled in £363m, with all inflows happening within ESG funds. Across all areas, ESG funds felt inflows of £1.54bn.

See also: Calastone: January 2024 sees most bullish investor sentiment in almost three years

Edward Glyn, head of global markets at Calastone, said: “Risk is back on with a vengeance. Investors are going cold on safe havens and jumping back into equities feet first. The US stockmarket has soared by a fifth since late October, driving accelerating fund inflows ever since.

“The rally has been driven by technology stocks in particular. These are heavily represented in ESG funds which may help explain why we are seeing such a surge of interest in US funds in this category.”

While North America thrived, UK-focused equity funds bled another £633m, in line with recent performance, and Asia Pacific funds dropped £229m.

“A rising tide is not lifting all boats, however. The UK stockmarket 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. Meanwhile, Asia-Pacific remains stuck in China’s doom loop,” Glyn said.

See also: Why Iboss is increasing its fixed income exposure

Fixed income also managed inflows of £329m in February, the highest since June 2023.

“The equity bull market seems to have ignored developments in the bond markets. Fears both that inflation may prove too sticky and that spendthrift governments simply haven’t got the will to curb their deficits have pushed yields back up in recent weeks – and bond prices therefore down,” Glyn said.

“These higher yields are bad for equity valuations but they haven’t touched the sides of the bull run. For their part, bond investors are adding modestly to their fund holdings – locking into today’s higher yields and hoping for capital gains if and when the market rallies.”

This article was written for our sister title Portfolio Adviser

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