Record $10 Billion Loss for UK Stock Funds in 2020, Study Reveals

Investors pulled money out of U.K. stock funds at a record pace last year, according to new research. The selling was more widespread than in other major markets.

‍
Calastone, a fund tracking service, reported Thursday that there were total outflows of £8.38 billion ($9.95 billion) from U.K.-focused equity funds in 2022. This is the worst performance in the eight years that Calastone has been tracking this data. Equity funds are investment vehicles that predominantly focus on shares of companies.
This compares with £2.65 billion in outflows from other European stock funds, £1.17 billion from North American funds and £1 billion from Asia-Pacific funds.

‍
The company said that three quarters of equity fund losses were in the third quarter, which was timed with a particularly turbulent period for U.K. politics. Former PM Liz Truss launched a controversial “mini-budget” during this time, which may have contributed to the overall decline in investment fund flows. This is the worst decline in investment fund flows in at least eight years, amid soaring inflation, uncertainty over the war in Ukraine, and central banks’ sharp pivots from monetary easing to tightening.

‍
Meanwhile, passive equity funds saw their first year of net outflows on record. These funds track a stock market or market sector, and the outflows suggest that investors are becoming more selective in their choices. This may be due to concerns about the overall market or specific sectors, or it may be a sign that investors are looking for more active management of their portfolios.

‍
There were some bright spots in the global equity markets, with environmental, social, and corporate governance funds adding £6.35 billion and emerging market funds adding £647 million.

‍
Edward Glyn, head of global markets at Calastone, said that interest rate hikes have had a profound effect on asset markets, causing investors to seek out cash and lower-risk investment options. This shift has turned many markets upside down, he said, with potentially far-reaching consequences.
"There has been a marked improvement in sentiment in recent weeks, but there is still a great deal of uncertainty about the future direction of interest rates and economic growth globally. We may yet see more bearish activity before the bull market can start again."

‍
However, he said that this positivity had not reached U.K.-focused funds due to predictions that the country would suffer the worst recession among major economies.
According to research published this week by State Street Global Advisors, Europe-based exchange traded funds have shown resilience in 2022, with $88 billion in net inflows driven by equities chiefly into "global developed" and U.S. "large-cap" funds. Investors have favored higher quality exposures and energy stocks, the research said.

‍
Investors have been shunning European stocks amid the war in Ukraine, high inflation and stronger monetary tightening than initially expected. However, the market has still shown some resilience.