Calastone: UK investors poured £1.4bn into equity funds in April 2023
UK investor confidence in equity funds has risen, as demonstrated by the net £1.4bn added to the strategies in April 2023. This is the largest inflow volume since May 2021, according to data from Calastone.
Global funds reported the highest inflows for the month at £1.6bn, the fourth highest on record.
UK investors also upped allocation to emerging markets with £364m of net inflows, followed by North American equities with £253m, which had suffered £2.1bn in outflows over the previous nine months. This was also reflected in Asia-focused funds posting positive flows, and inflows to specialist technology funds for the first time since August 2022.
At the same time, European equity funds shrunk to their lowest level since March 2022.
UK investors have also continued to shun UK-focused funds, Calastone found. Outflows for these funds accelerated in April, rising to £782m, marking the 23rd consecutive month of net selling and totalling £13.8bn in outflows since June 2021.
"The big switch out of UK funds has been matched almost exactly by buying of internationally-focused equity funds over the same period. Since June 2021, internationally focused funds have enjoyed inflows of £13.9bn," Calastone said.
Despite greater inflows into equity funds, trading activity continued to drop. Calastone found the total value of buy orders plus sell orders - also known as turnover - fell 19.5% month-on-month from £24.9bn to £20bn.
The company said this was likely due to investors rushing to use their capital gains tax allowance in March, since it has halved from the beginning of the current tax year.
Calastone noted, however, March and April 2023 marked the first time in a year that investors switched from funds with lower risk ratings for those in higher risk categories.
Edward Glyn, head of global markets at Calastone, said the inflow surge in equity funds is likely due to capital markets "trading sideways in April".
"Meanwhile, the sharp turnaround in interest in North American and specialist tech funds reflects the strong response of growth-company share prices to falling long-term bond rates," he added.
Glyn explained emerging markets have been attractive for UK investors as they tend to "benefit" when the US dollar weakens and valuations are "low relative to developed-markets counterparts".
He continued: "The horizon is not unclouded, however. Company profits are under pressure and there remains a lot of uncertainty over the likelihood and severity of any potential economic downturn. The resurgent optimism is therefore rather fragile. Indeed, markets plunged at the beginning of May as US banking failures continued."