UK investors added £960 million to their funds in March, making it the best month for equity funds since December 2021. According to fund flow index data provider Calastone, this reflected optimism about equity markets despite contagion concerns over US and Swiss bank failures.
Global funds enjoyed the most inflows (£1.69 billion), while UK-focused equity funds lost £747 million in March—the latter's 22nd consecutive month for outflows. The shift in preference from UK equities reflected improved investor confidence in the asset class, reported Calastone.
Marking its first inflow in more than a year and best performance since April 2021, passive equity funds gained £909 million in March. In contrast, active funds received £51 million from investors.
The “ESG gold rush” might just have peaked, inferred Calastone. ESG funds absorbed £218 million in March, marking its second-worst month since October 2019.
With £393 million of inflows in March, emerging markets are “strongly in favour” at present, said Calastone, whereas European funds remained out of favour. Considering data showing three times more capital investment in UK equity funds than European equity funds, the picture is overall similar for European and UK-focused funds. UK investors sold down a net £238 million in March, and European funds have suffered outflows for 15 consecutive months.
Fixed income funds enjoyed above-average net inflows worth £683 million in March, though at a slower rate by recent standards. This was attributed to hopes of capital gains if central bank interest rates are near their peak. £2.75 billion inflows in the first quarter of 2023 recorded the "best quarter" for fixed income funds in Calastone’s record.
Edward Glyn, head of global markets, Calastone, commented: "A period of strong performance by UK equities, after years missing out on the global bull market, has clearly provided an opportunity to cash out.
"The ESG gold rush has seemingly passed its peak. A host of factors are at play, including the high weighting of poorly performing technology stocks in ESG portfolios, the greenwashing backlash, and a refocusing of marketing activity by fund managers. ESG may be down, but it’s not out. Now the initial flurry has subsided, the asset class is likely to mature over the longer term.”
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