The latest Fund Flow Index numbers from Calastone point to a fourth consecutive quarter of net outflows from active funds in the UK funds, which would make it the worst year ever recorded on this basis.
Calastone, which handles more than two-thirds of all fund transactions in the UK by value each month, has been tracking buy and sell orders since 2015. The third calendar quarter of 2019 saw £3.5bn flow out of active equity funds, which was more than the three previous quarters combined.
And its Fund Flow Index Active Equity measure of 44.9 for the latest quarter is the lowest on record, it added.
It was again UK equity funds that took the brunt of outflows, some £1.2bn, with another £796m exiting equity income funds with most assets invested in UK equities. However, equity funds focused on Europe, North America and Asia also experienced net outflows. Active global funds saw some net inflows.
Passive index funds by contrast saw a 12th consecutive quarter of inflows, of some £1.7bn in the third quarter. Some £6.4bn has flowed to passive equity funds in the past 12 months, Calastone's data suggests, which is a near doubling on the previous record 12 month period, defined as calendar year 2017.
Still, the outflows from actively managed equity have overcome the inflows seen by passively managed equity, with the Fund Flow Indes Equity measure falling to 46.3 in the third quarter.
Outflows also hit property, absolute return, commodity and mixed asset funds in September, Calastone added.
Edward Glyn, head of global markets at Calastone, said: "As an asset class, equities are firmly out of favour among UK investors, and especially active equity funds. What began as a trickle of funds out of active equity funds late last year swelled to a flood over the summer as investors grew more fearful over the health of the global economy. The exodus slowed a touch in September, but it's now a near certainty that in 2019 active funds will suffer their first full year of outflows."
"Perhaps counterintuitively, global funds continue to attract inflows, however. This is because in uncertain times investors would rather spread their risk across the whole range of global stock markets, than attempt to pick the winning region. They are reducing their exposure to equities overall, but allowing their remaining holdings to concentrate increasingly into global funds, already the largest single category by assets under management. The particular distaste for UK assets, however, is a very clear response to the ever-intensifying political crisis, especially now that it is accompanied by clear evidence of economic damage too."
"The growing divergence between appetite for active and passive funds is a clear, structural step-change in UK investor behaviour. Investors are cementing passive funds into their regular savings plans, and trading them far less frequently than their active holdings. Passive equity funds under management in the UK are still smaller than active funds, but they are growing much faster."
"More widely, the absence of risk appetite by UK investors has been really stark in Q3. Asset classes associated with greater stability are benefitting from investor nerves. The picture improved a little in September, but it's too soon to call time on investor fear."