Investors pulled £38.1bn from active funds in 2023 as cost of living pressure bites
Apr 2, 2024 11:30:00 AM
Update
Active funds suffered outflows totalling £38.1bn in 2023, as investors continued to favour tracker funds, according to data from the Investment Association (IA). Last year marked the second year in a row the funds industry posted outflows, with investors taking a net £24.3bn out of funds. This figure was tempered by net inflows to tracker funds, which enjoyed positive flows of £14bn over the course of 2023.However, despite outflows continuing for another year, the figure was slightly tempered on the nearly £27bn withdrawn in 2022.
The main share of the outflows came from equity funds, which saw £22bn withdrawn over the course of 2023, largely driven by UK equities, which witnessed £14bn in outflows in its eight consecutive year of outflows, the IA noted.
Responsible investment funds also suffered last year, with £3bn withdrawn, amid declining sales and a less favourable environment for ESG globally.
Money Markets were the most favoured asset class of, 2023 gathering £2.2bn, followed by fixed income, with inflows of £716m over the year.
By sector, Volatility Managed topped the list, with £2.7bn net retail sales, while investors also paid £2.5bn into UK Gilts and £2bn into Government Bonds last year, enticed by higher yields, the IA said.
By contrast, the worst-selling IA sector last year was the UK All Companies which shed £10.2bn.
In January 2024, investors continued to exit funds, with £1.1bn withdrawn in net retail sales and £1.7bn from net institutional sales. On the retail front, this compared to £398m inflows in January 2023, while for institutional sales January 2024 marked a significant reduction from the £4.7bn withdrawn a year prior.
Over the course of the month, the Short Term Money market became the best-selling sector, with £1.1bn in net retail sales, while equity funds continued to add to their outflows by shedding £1.5bn.
Miranda Seath, director of market insight and fund sectors at the Investment Association, said: "The cost of living crisis and economic uncertainty has continued to impact households across the UK, with investors withdrawing just under £24.3bn from funds. The impact of higher interest rates was a key factor in retail investor activity and decision-making. Cash savings accounts offered attractive interest rates for the first time in over a decade, impacting net retail sales. As we look ahead, we will see how UK investors respond to market shifts in 2024. When, how fast and how far central banks cut interest rates remains crucial. In January, investors took £1bn out of funds, however, tracker funds continued to see strong inflows at £1.7bn. It is also an election year in the US, India and the UK, and political change could impact the investment outlook. However, the impact of the market shocks we saw in 2022 has dissipated to a large extent."