Investors pulled out more than £1bn from equity funds last month, according to Calastone’s latest Fund Flow Index, as stocks around the world tumbled on concerns about rising inflation and interest rates.
It takes the total amount removed from equity funds to £1.9bn so far this year, with UK funds hit the hardest. Investors sold down a record £1.1bn in June, the 13th negative month in a row.
A lack of buying interest was the main culprit for the net sales, with the report noting that buy orders plummeted, while sell orders increased slightly.
Edward Glyn, head of global markets at Calastone, said: “Signs of optimism are scarce as the bear market shreds investor sentiment. UK stocks are, however, not in bear territory, yet investors are selling out of UK-focused funds more heavily than any other category.
“This reflects the home-market bias in UK investor portfolios. A reduction in appetite to hold equities will inevitably hit UK-focused funds harder.”
It was a bad month for equities overall, with global, European, emerging markets, technology and smaller companies funds all suffering from investor withdrawals.
Part of this may be due to the poor returns on offer last month. Only Chinese stocks made meaningful returns in June, up 13.8%, while sectors that had previously risen this year, such as Latin America and commodities, dived.
Several analysts have this week warned of a coming recession, including Janus Henderson’s head of multi-asset Paul O’Connor. He claimed the bottom will “likely arrive in the second half of the year”.
Premier Miton’s David Jane said a recession was “inevitable” as central banks only had one option to stem inflation: reduce demand.
Income remained a bright spot, as it did in May, with investors allocating more to funds that focus on dividends. Funds with high payouts enjoyed the third month in a row of net inflows, after years of steady selling.
“Investors switched to defensive options more likely to ride out the downturn in the market and the real economy,” the report said.
Environmental, social and governance (ESG) funds bucked the trend as well, with another strong month in June. These portfolios have thrived this year, with inflows of £2.3bn, including £292m last month.
As a result of this, there has been a growing divergence between active and passive funds, with investors choosing active ESG products.
Index trackers have borne the brunt of the selling so far this year, with £2.6bn taken out of passive funds versus £633m of inflows for active portfolios.
Glyn said: “The greater outflows from passive funds than active ones, even after ESG is taken into account, are especially stark given that passive funds are a smaller category by assets under management. In falling markets, active funds tend to have more opportunities to outperform and this may be driving behaviour.”
Bond funds fared little better than equities, with investors pulling £458m from fixed income portfolios, while £93m was removed from mixed-asset funds.
One bright spot was property, which enjoyed its first inflows in almost four years as investors focused on the potential inflation-matching returns from the sector. After 44 consecutive months of outflows, £134m was added in June.
“Rental income is a bit bond-like because commercial tenants tend to have relatively long leases and will look to cut other costs before facing the upheaval of a move. As an asset-backed income investment, it therefore looks relatively attractive in today’s envir