Volatility shifts focus to money market from main asset classes, October data shows

In October 2023, equity funds saw their largest outflows since September 2022, totaling £1.20 billion, data showed. UK-focused equity funds were the most affected, followed by income funds, European equities, and sector funds.

According to data provider Calastone’s October fund flow index, year-to-date, equity funds lost £2.88 billion. UK-focused equity funds lost £739 million, the highest outflows since April. Equity income funds saw £475 million in outflows in October, marking their 16th consecutive month of net selling.

European equity funds had their worst month in 2023, with outflows of £318 million, and specialist sector funds posted their worst month on record at -£275 million. Infrastructure-focused funds contributed significantly to the sector’s outflows.

ESG equity funds had their second-worst month at £700 million in outflows, part of a six-month trend where £3.14 billion has exited the sector. ESG fixed income and mixed asset funds also experienced outflows.

Fixed income funds also experienced outflows worth £79 million due to rising yields, and mixed asset funds had record outflows worth £1.57 billion. 

Global equity funds and emerging markets bucked the selling trend – and enjoyed inflows.

According to data, money market funds – viewed by investors as a “safe haven” – saw strong inflows. Investors added £586 million of new capital, the third-best month for the sector on the data provider’s record.

Edward Glyn, head of global markets at Calastone said: Despite dividend income in the UK and around the world looking healthy, income funds are suffering in comparison to the interest income investors can earn on bonds, money markets and cash. The valuation of dividend stocks is less sensitive to bond yields than high-growth companies, but investors looking for income now have alternatives that come with lower risk. 

 Record outflows from mixed asset funds suggest a shift in investor sentiment, as their traditionally favourable risk-reward balance falters due to rising correlations in asset markets, added Glyn.

© 2023 funds europe

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