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Equity inflows turn to outflows by third week of May

equities_coronavirus_stock_marketsEquity funds enjoyed “exceptionally high” inflows during the first week of May, but confidence dropped off as the month progressed, according to the latest report from fund transaction network Calastone.

Overall new investments for the month reached £1.1 billion (€1.2 billion), making it one of the only four months since May 2018 to have net inflows exceeding the £1 billion mark.

However, the “euphoria” that characterised the stock market rally began to drain away by the second week. By the third week of the month, inflows turned into redemptions, the report found.

Actively-managed funds saw large investment bringing in £581 million , while their passive counterparts saw £493 million of investor cash overall in May.

Edward Glyn, head of global markets at Calastone, said: “Those who bought funds in early in April in record volumes took the opportunity to pick equities up on the cheap and have done well so far.”

“The decision is more difficult following the rally. Investors are stuck between a rock and a hard place: interest rates are at or below zero across the developed world are pushing savings out of cash, but stock market valuations look high in the face of the historic economic crisis prompted by the pandemic.”

According to Glyn, this is driving a lot of buying and selling as the news cycle unfolds and investors try to work out what it means for asset prices. “The uncertainty helps explain why overall trading volumes across our network have been so high this year,” he added.

On the back of a flood of central bank liquidity aimed at restoring order in the bond market, fixed income funds also saw new cash to the tune of £559 million – a little above the monthly average over the last few years.

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