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ESG leads UK retail investors as they return to equities

 ESG fund flows, ESG assets under managementUK equity funds saw inflows for the first time in eight months during February, which is seen as a sign of recovery from Covid-19’s impact on markets.

Latest fund inflow data also suggests records being set for ESG investment funds, according to two separate pieces of research.

However, the return to UK equities was described as “tentative” with UK investors adding £145 million to their holdings, which followed outflows of £2.2 billion in the previous eight months, according to Calastone, a fund transaction network.

Calastone also cautioned that in the final week of February, UK equity funds saw £19 million of outflows.

Edward Glyn, head of global markets at Calastone said: “UK funds have been so out of favour for so long that some rotation is clearly taking place now…”.

UK investors put £961 million into equity funds in general. This generated a reading in Calastone’s equity Fund Flow Index of 52.1 (a reading of 50 means buys equal sells).

ESG equity funds saw £809 million of inflows – meaning February saw more inflows in this fund category than in all Q1 last year, when £589 million was invested.

Meanwhile, separate research by the UK’s Investment Association (IA) for the previous month, showed net retail sales into responsible investment funds in the UK in January reached £1.2 billion. This was split between £703 million for equity funds, £180 million for bond funds and £241 million for mixed asset funds.

The IA also said total net retail sales for ESG funds over the last 12 months were £12.4 billion – 43% of total net sales.

Responsible investment funds under management now total over £56 billion. This is 4% of the total funds under management, but there was 66% growth - a record - over the past 12 months in ESG, in comparison to 7% across funds overall, the IA said.

Chris Cummings, chief executive of the IA, said responsible investment funds were continuing to “capture investors’ imagination”.

He added: “This growth is indicative of how important investing with environmental, social and governance considerations in mind has become.”

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