Budget uncertainty fuelled outflows in September as UK investors pulled a net £3.4bn from funds in the month, according to the Investment Association (IA).
The build-up to the Autumn Budget saw investors become concerned over a capital gains tax rise, which came to fruition on 30 October when chancellor Rachel Reeves increased the higher rate to 24%.
Equity funds were hit hardest by outflows, with a net £2.4bn redeemed in the month, a substantial increase from August’s £424m outflow.
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UK funds saw net retail outflows of £961m, as UK All Companies was the worst-selling IA sector in the month with net redemptions of £581m.
The only region to record inflows was IA North America, received a net £101m, though this was down from £527m in August.
Outflows hit fixed income and multi asset
After recording a £1.8bn net inflow in August, fixed income flows reversed sharply as investors pulled £116m in the month.
Outflows also climbed for multi-asset funds, reaching £534m from £192m in August.
The Mixed Investment 40-85% Shares sector recorded record monthly outflows of sector of £354m.
Miranda Seath, director, market insight & fund sectors at the IA, said: “In September, investors turned their focus towards the impending Budget as speculation grew around how much the Government would need to borrow and the tough decisions they would take on tax.
See also: As dust settles from Autumn Budget, how will UK markets fare?
“It was clear that capital gains tax rises were almost inevitable, and this looks to be a contributing factor to a surge in outflows across equities, which has upended the tentative recovery of flows into the asset class in previous months.”
Responsible investment funds also suffered record outflows of £604m, exceeding the previous record outflow of £541m in October 2023.
UK investor funds under management ended Q3 at £1.497trn, down 0.5% on the previous quarter.
Seath added: “In the longer term, and with the Budget now in the rear-view mirror, there does appear to be some clarity for investors, but only if the Chancellor is able to stick to her commitment to setting long-term and stable fiscal policy, and achieve growth, without raising taxes further.
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“Looking ahead to the final quarter of 2024, Trump’s US election victory will be a more significant factor in the fortunes of markets around the world and investors will be watching closely.”
Reacting to the data, Hargreaves Lansdown lead investment analyst Kate Marshall said: “While optimism over the summer months saw inflows into equity funds, it’s not a huge surprise to see investors pulling money back out in September, ahead of Labour’s first Budget.
“During the first month of Autumn, investors turned their focus to the impending Budget, and the almost inevitable rises in CGT. Not wanting to get caught out by higher tax bills, investors locked in profits. For some, this felt the right call given CGT was hiked from 20% to 24%, while the lower rate increased from 10% to 18%.”
This story was written by our sister title, Portfolio Adviser
