Retail investors withdrew a total of £3.5bn from funds in June alone following the surprise Brexit result, most of which was from equity investment vehicles, according to the latest data from the Investment Association.
While UK and European equity funds bore the brunt of investor panic with a combined outflow of almost £2bn, global, Asian, Japanese and US funds also suffered outflows of more than £100m each.
Unsurprisingly, the IA Property sector also took a hit in June, having been the worst-selling sector with net retail outflows of £1.4bn.
Despite the significant level of outflows, however, funds under management increased from £920bn to £948bn over the course of the month.
"The retail outflow in June occurred in the context of record levels of funds under management, and represented just 0.37 per cent of total assets during a period of intense market volatility," the Investment Association's Guy Sears said.
"Clearly, Brexit has been unsettling, with property and equity funds particularly affected following earlier outflows during 2016. At the same time, flows were positive into fixed income and targeted absolute return sectors as investors sought safer harbours."
"In the first six months of this year, industry funds under management grew by £22.6 billion. Fixed income funds saw the largest growth in funds under management in the year to the end of June with £13 billion. Funds under management in mixed asset funds increased by £5.2bn and equity funds grew by £1.4bn."
Equity funds accounted for a net retail outflow of £2.8bn in June and £1bn of this was from UK equity funds specifically – funds in the country that have shed the most money include the likes of Invesco Perpetual High Income, which has seen underlying outflows of £164.38m (1.4 per cent of its AUM) over the last month, and Old Mutual UK Mid Cap, which has suffered outflows of £95.5m (4.3 per cent of its AUM).
Table of 10 funds with biggest outflows over one month
Source: FE Analytics
With many investors concerned that the FTSE 100's recent strong performance can be attributed to the weakening of sterling rather than for any sound economic reasons and given the lacklustre performance of property and domestic-facing stocks, should other investors follow suit and pull their money out?
Laith Khalaf, senior analyst at Hargreaves Lansdown, says investors should maintain a long-term investment view and ride out any volatility in order to maximise returns.
According to Hargreaves Lansdown's research, the worst month for withdrawals during the financial crisis was January 2008 when investors pulled £561m from UK investment funds, which is just one-fifth of the outflows seen in June this year.
"The scale of the exodus from investment funds in June is quite extraordinary, with the Brexit vote eclipsing the financial crisis in terms of putting the frighteners on retail investors in the short term," he said.
"Clearly investors were rattled by the referendum, and switched out of assets they perceived to be at risk from a vote to leave the EU. UK investors who withdrew from equity funds are probably regretting this decision in light of the performance of the stock market since the referendum, and that goes in spades for those who cashed in their ISA allowance, losing that tax shelter forever."
Performance of index since EU referendum
Source: FE Analytics
"This demonstrates the danger of events-based investing, because even if you do happen to guess the correct outcome, you still might not be able to predict the effect on markets and asset prices."
"When it comes to elections and referenda, investors are better off voting with their polling cards rather than their finances. In these situations it pays to keep a cool head, to ignore the inevitable clamour, and to take a long-term view on your portfolio."
Jason Hollands, managing director at Tilney Bestinvest, says that these outflows are unsurprising given the "apocalyptic" forecasts being made if Britain were to leave the European Union.
While the impact of a Brexit on markets over the medium-to-long term remains to be seen, he points out that fears surrounding a potential market meltdown have so far proven to be incorrect.
"The FTSE 100 is trading higher in sterling terms than it was prior to the vote and the more domestically skewed FTSE 250 index has recovered from the initial knee jerk sell-off," he said.
Performance of index in 2016
Source: FE Analytics
"Of course the really interesting data will come next month when we find out what happened in July, the month after the vote. Amongst our own clients we saw increased new investment activity, initially from clients buying into the sell-off but which broadened out as markets stabilised and the sky did not fall in after all."
However, he warns that Brexit fears may well have overshadowed other headwinds on the horizon for global markets, which he says is a market risk in itself.
In an article published earlier this month, chief investment officer at Tilney Bestinvest Gareth Lewis explained that the firm was reducing its exposure to sovereign bonds and increasing its gold exposure for the first time since the financial crisis due to China fears and high levels of global debt.
"In our view, China continues to pose a considerably bigger risk than Brexit ever did, given its persistent pursuit of debt fuelled stimulus and worrying manufacturing overcapacity," Hollands continued.
"More broadly there is still too much leverage trapped in the financial system after years of relentless stimulus programmes and in the aftermath of Brexit, may be about to pile on more liquidity with a further cut to interest rates this week. These financial sugar rushes cannot go on forever."
