Funds investing in UK equities received net inflows for the first time in November since May 2021, breaking a dry spell that lasted 41 consecutive months, according to new data from Calastone.
The £317m that investors added to UK funds was a drop in the ocean compared with the £25.3bn they had removed since 2021, but marks a significant moment after a prolonged period of divestment.
Calastone speculated that October’s Autumn Budget was a significant catalyst for these inflows as investors had withdrawn cash in the approaching week, namely over fears of Capital Gains Tax (CGT) rises and how it would impact their portfolios.
See also: Has the Budget revived for the fortunes for UK equities?
Once investors had more information after the Rachel Reeves’ speech, they felt more confident reinvesting their money.
Given how this first month of inflows was driven by Budget fears, Calastone’s head of global markets Edward Glyn questioned whether this positive momentum can be maintained, or whether November was a one-off.
“Almost half of October’s outflows were poured back into equity funds in the first week of November, further evidence that these record flows were all about minimising tax bills,” he said.
“Time will tell, but the inflow to UK-focused funds is therefore likely to be a hiatus rather than marking a break in the trend. There is no major catalyst on the immediate horizon to prompt a wholesale resurgence of interest in the much unloved UK stock market.”
Highest equity fund inflows on record
Funds investing in UK equities were not the only post-Budget beneficiaries – equity funds across the board received their highest monthly inflow on record, raking in £3.1bn in November.
Global, North American and emerging market funds were the most popular, with investors adding £1.2bn, £848m and £426m to them respectively.
Other assets classes received net inflows too, with fixed income funds taking in £764m throughout November after two months of outflows in August and September.
See also: The asset allocator diary: Fabiana Fedeli
Bond yields dropped over the summer on expectations of rapid rate cuts, but rose again once inflationary pressures returned.
Glyn said: “These higher yields have tempted investors back into fixed income funds over the last few weeks. Those who added to their fixed income holdings in the first half of November are already enjoying capital gains.”
This story was written by our sister title, Portfolio Adviser
