UK retail investors are redirecting their investments away from equity funds and toward safer, high-yielding debt products, marking the fastest outflows since last year’s aftermath of former Prime Minister Liz Truss’s “mini” Budget. Data from Calastone, a global funds network, reveals that in June, retail and small investors withdrew £662 million from equity funds and allocated £1.38 billion to fixed-income and money-market funds, benefiting from the rising interest rates that have boosted yields in these sectors.
Amid mounting concerns about a looming global recession and dissatisfaction with retail lenders’ failure to pass on the Bank of England’s recent interest rate hike to savers, UK investors are shifting their investment strategy. Edward Glyn, the Head of Global Markets at Calastone, a leading global funds network, notes that investors gravitate towards safer options offering better yields and protection against political and economic uncertainties. Furthermore, there are doubts about the competitiveness of interest rates provided by banks.
Calastone’s data also indicates that over the past 12 months, investors have withdrawn £3.65 billion from equity funds while investing nearly £10 billion in fixed-income and money market funds. June marked the 25th consecutive month of outflows from UK equity funds and the worst-ever month for environmental, social, and governance (ESG) funds.
Source: Calastone
Furthermore, UK investors have shown significant interest in money market funds, with over £500 million invested in June alone, almost reaching the total amount invested in 2022. Vanguard, one of the largest global providers of funds and exchange-traded funds to retail investors reported that investors allocated over £200 million to its sterling-denominated money market fund in the first half of the year, surpassing the fund’s initial assets under management.
Money market funds in the UK, which primarily invest in secure and highly liquid assets like short-term government securities debt, have seen their total assets reach £28 billion in May 2023, up from £26 billion the previous month. These funds provide investors with a liquid product offering stable returns. However, it’s important to note that, unlike bank deposits, money market funds are not covered by any deposit protection scheme.
The Bank of England’s report revealed record-high household withdrawals of £4.6 billion from banks and building societies in May, emphasizing the growing trend of investors seeking alternative options beyond traditional banking channels.
