UK investors missed the global rally in 2023 as they dumped equity funds for bonds
Retail investors pulled more than initially stated from equity funds in 2022, but outflows slowed in 2023, according to data from the Investment Association (IA) and Deutsche Numis.
IA’s figures showed UK retail investors pulled £24.3bn from open-ended funds in 2023, although slightly better than the figure reported for 2022 it was still one of the highest and fastest levels recorded.
Net retail outflows totalled £26bn in 2022, worse than expected after the numbers were revised. IA had originally said investors pulled £24.9bn in 2022 – the first annual outflow on record.
Although global equity markets rallied in 2023 and ended the year on a high, retail investors continued to shun equity markets, resulting in record net outflows of £22.4bn from Equity funds in 2023. A net outflow of £18.8bn was recorded from equity funds in 2022.
As investors pulled cash from equity funds, they ploughed cash into fixed income and money market as well as volatility managed funds. These booked £2.7bn of net inflows in 2023. Money market recorded £2.2bn of inflows, gilts recorded £2.5bn of net flows and government bond funds recorded inflows of £2.1bn.
UK equity recorded the biggest outflows. Funds in the UK All Companies sector recorded outflows of £10.2bn, while the UK Equity Income saw outflows of £2.3bn and the UK Smaller Companies sector recorded outflows of £1.1bn.
Global funds recorded inflows of £1.6bn, with Japan-focused recorded inflows of £466m. Flows into global equity were hardly enough to compensate for outflows from UK-focused funds.
These trends have continued into 2024, as the report from Deutsche Numis stated: “The IA has also published data for January 2024. There were net outflows of £1,090m from open-ended funds by retail investors in January 2024, according to figures released by the Investment Association.”
It added: “This compares to net outflows of £776m in December 2023. In January, net outflows were driven by Equity (-£1,494m), Fixed Income (-£426m) and Mixed Asset (-£215m). There were also net outflows from Absolute Return (-£168m), Property (-£72m) and Other (-£60m). This was partially offset by net inflows to Money Market (£1,126m) and Volatility managed (£215m).”