Uncertainty directs £57bn of funds offshore from UK - Calastone

Jonathan Boyd
clock • 4 min read

The Calastone Fund Flow Index, provided by the global fund transaction platform, suggests inflows were much improved in January on December, but that there are still trends indicating uncertainty amongst investors in the UK.

The FFI - which tracks orders representing millions of individual investor decisions - rose to 53.2 (50 indicates that inflows of capital equal outflows), but this was below the long-run average, and largely dependent on investors buying mixed asset funds.

"Other asset classes were either broadly neutral or witnessed outright outflows. The net value flowing into UK funds was £1.7bn in January, one third lower than the long term average," Calastone notes.

"Mixed asset funds accounted for nine tenths of net fund inflows in January, recouping some of the reduction in demand for them in recent months. Because they feature so prominently in regular savings plans, they are the asset class that typically sees the least flow variability from month to month by quite a large margin. In fact, there has only been one month in at least the last four years where they have seen net outflows, and even then it was vanishingly small. This makes mixed asset funds poor barometers of investor confidence."

"Other asset classes showed that investors are reluctant to commit new capital to the market, or are redeeming units in their fund holdings."

"Property funds saw their fourth consecutive monthly outflow as another £329m left the market, taking net redemptions since October 2018 to £899m. The FFI Real Estate languished at 27.6, its third lowest reading on record for the Calastone index. Fixed income funds are having their worst run since 2015 with outflows in three of the last four months: £324m flowed out in January, leaving the FFI Bonds at 46.0. Alternatives registered outflows for the fourth consecutive month."

"Equity inflows of £225m were just one quarter of the long-run monthly average, even though overall volumes of two-way trade were roughly in line with normal activity. As a result, the FFI Equity registered 50.9, only a little above the neutral 50 mark. Busy trading activity, but little new money being committed, suggests investors were more prepared to switch between funds than to add to their holdings."

"The weakest were European equity funds, which saw their largest net outflow since the aftermath of the Brexit referendum. Equity income funds saw their 20th consecutive month of outflows, although the rate of redemptions has slowed markedly in the last four months. North American equities saw modest outflows too, while fund flows to Asia remained at two-year lows."

"UK equities saw a tiny £14m of inflows, despite being the largest category of funds under management, registering a neutral FFI of 50.3. Cash flowed out of UK equity funds on the days immediately before and after Theresa May's historic defeat on her Brexit agreement, but the biggest net selling day of the month took place when she doubled down on her red lines a week later."

"In the equity asset class, the big winners in January were global funds. £651m flowed in, bucking the trend in other equity fund categories and registering a very strong FFI of 63.3. Global funds are the only category of equity fund not to have seen any month with net outflows in the last three years."

"Net flows of UK capital into funds domiciled offshore continued their unbroken run since the UK's Brexit referendum campaign kicked off in the spring of 2016. A cumulative net £57bn has flowed into funds that lie outside the UK's regulatory jurisdiction since April 2016. Before that time, inflows roughly balanced outflows. In January, net inflows to offshore funds were positive in every asset class except money market funds, which typically show more volatility among the institutional and high net worth individuals who are more prone to using offshore vehicles for their capital. Offshore investors were significantly more positive on equities in January than those in UK-domiciled funds, but only took an interest in global and emerging market funds. They redeemed holdings in other equity categories, selling UK funds for the sixth consecutive month. They were also particularly large sellers of European equity funds."

 

Jonathan Boyd
Author spotlight

Jonathan Boyd

Editorial Director of Open Door Media Publishing Ltd, and Editor of InvestmentEurope.