Household savings gives UK funds a boost

fund flowsThe large amount of household savings related to lockdowns have been linked with record fund flows in the UK during the second quarter.

Investors placed £6.2 billion (€7.3 billion) into equity funds during Q2, beating the previous quarterly record set in 2015.

The first half of 2021 also set an inflow record, at £10.1 billion.

Edward Glyn, head of global markets at Calastone, a fund transaction network that gathers flow figures, related the inflows to Bank of England data for household savings during the pandemic.

“UK savers have salted away an extra £192 billion in their bank accounts since the pandemic began. Not much of this enormous cash surplus needs to reach investment funds before it smashes records, which explains why investment funds have had such a strong run of inflows over the last year, especially equities,” he said.

Over the last 12 months, equity funds absorbed an “astonishing” £15 billion of new cash, smashing the previous 12-month record set in early 2018 by a fifth.

Across all asset classes, the £35.6 billion inflow is the strongest in any rolling 12-month period since late 2018, Calastone said.

However, June saw a slowdown in flows overall, while UK-focused funds saw outflows.

Glyn said: “There is certainly some nervousness around now, however. For the medium term, financial markets are weighing up whether the blistering speed of this business cycle means it is already time to look beyond to the inevitable economic cooling. A change in sentiment like this also impacts the relative attractiveness of more value-orientated markets like the UK, which benefit from a bit of inflation. It is not yet clear whether the ‘reflation trade’ has further to run, as the short-term prospects are clouded by the Covid-19 third-wave risks.”