December inflows to UK equity funds spiked to their highest monthly level in two years, which is because of the Conservative Party victory in the UK's general election that took place on 12 December 2019, according to Calastone Fund Flow Index data for the UK market.
The FFI is bassed on more than a million aggregated buy and sell orders monthly, tracking flows from IFAs, platforms and institutions into and out of investment funds. Some two-thirds of UK fund flows go through the Calastone network monthly, it says.
The latest FFI figures suggest December net inflows to funds focused on the UK, including equity funds, at around £1bn was twice the previous monthly record set in July 2015.
Calastone says flows to UK funds tripled after election day, helping send the FFI:Equity index to 56.7, versus the level seen through most of 2019 when the index was either neutral or negative.
The FFI: UK Equity index jumped to 63.4, its highest ever reading. UK-focused funds saw net inflows of £1.5bn for all of 2019, which means the December net inflows accounted for two-thirds of the yearly total.
Calastone stated: "There is no doubt the UK election was the main driver. Flows into UK-focused funds picked up strongly as soon as the election was called and strengthened as polls indicated a likely majority for the Conservative Party. But the only poll that counts is election day - and the decisive result it delivered drove net inflows in the 11 post-election trading days of the year to levels three times higher than in the first few days of the month running up to the election."
Edward Glyn, head of global markets at Calastone added: "December proved just how powerful the influence of politics is over investor activity. Hints of progress on US-China trade relations combined with a landslide victory for the Conservative Party generated a huge turnaround in appetite for equity funds."
"Regardless of the relative merits of Brexit or remaining in the EU, an end to the UK's political deadlock and a clearer path for the country (at least in the short term) is unleashing enormous pent-up demand for UK equities in particular, whose performance has lagged far behind their peers elsewhere in the world. It is not all about Brexit, however. The Labour Party's historic defeat also had a positive impact on investor appetite for UK assets, and on valuations, as it removed the prospect of a wide-ranging left-wing programme that investors judged was negative for asset values."
"In truth, we are just at the end of the beginning of the Brexit journey. Which of the wide range of available paths the government chooses to take for its future relations with the EU will determine whether December was just a flurry of relief-driven excitement or the beginning of a sustainable trend back into favour for UK equities."