UK Investors Add $2.18 Billion to Their Equity Funds in June

The UK investors added $2.18 billion to their equity fund holdings in June, according to the latest Fund Flow Index (FFI) from Calastone, the largest global funds network. Including June, five of the fifteen best months on Calastone’s record have been in 2024 alone. Indeed, the June figures extended a remarkably strong few months of inflows.

In the first half of 2024, investors added $14.46 billion to their holdings, the best six months for equity funds on Calastone’s ten-year record. The previous was $14.31 billion for six months ending April 2021.

In the first half of the year, North American and global funds absorbed $9.9 billion and $9.62 billion respectively, though this was offset by a $4.76 billion outflow from the UK focused funds. European and emerging market funds also did well, while income funds suffered outflows.

Furthermore, global equity funds were June’s most popular category, scooping up a net $1.73 billion, while European equities absorbed a net $906.53 million. Elsewhere, emerging markets saw inflows return after two months of net selling – investors added $341.54 million in June, almost entirely favouring global emerging market funds.

“The biggest change was in North America. After breaking a number of records already this year as investor cash poured into the sector at breakneck speed, inflows completely dried up in June. Investors withdrew $0.76 million from North American equity funds during the month, despite the ongoing strong performance of the US equity market.

Impact on ESG

The ESG category cuts across regional classifications as ESG funds recently enjoyed their best few months since 2021 after a protracted spell of divestment – investors have added $6.48 billion between January and May thanks to strong buying of US ESG funds which are heavily weighted to the big technology names like Microsoft and Nvidia.

In June, however, investors tipped into net selling of ESG funds for the first time since December, withdrawing $227.27 million of cash from the sector. The loss of interest in the US ESG funds in June meant ongoing outflows from UK-focused ESG funds in particular made the most negative contribution and helped pull the overall figure into net selling.

Among other asset classes, an interest rate cut from the European Central Bank (ECB) and optimism that cuts would soon follow in the UK and the US meant a sharp drop in bond yields during the month.

This brought capital gains for bond investors and would have pleased those that locked into the high yields available between the end of April and the end of May. Nevertheless, investors withdrew capital from bond funds for the second month in a row, pulling $598.01 million from their holdings in June, and taking the two-month total to $1.41 billion, the FFI said.

Edward Glyn, head of global markets at Calastone said that all eyes were trained on the world’s central banks, looking for signals that long-awaited rate cuts from the Fed and the Bank of England will follow those like the ECB, Swiss National Bank and the Bank of Canada which have already begun to bring the price of money down.

Hopes for cheaper money after the painful rate squeeze of the last two-and-a-half years are the clear driver of record flows into equity funds so far this year. The US market valuation is not cheap, however, and this means investors are hoping that earnings growth will deliver, as the prospect for multiples to expand further is surely limited at present.

“The outflows from fixed income funds in the last two months are harder to understand. If investors truly believe rates are coming down and will stay low, then there are capital gains to be made in the bond markets. Perhaps the allure of equities simply looks too strong at present. Moreover, since the beginning of 2022, bond funds have seen inflows more than twice as large as equity funds, so the current picture may simply reflect a rebalancing of investor appetite,” he added.