Investors piled into bond and multi-asset funds in May, which both enjoyed their strongest month in almost three years, according to data from Calastone.
Fixed-income portfolios took in £877m in net new money last month, the biggest monthly intake since June 2024 and the sixth-best month on record, as yields surged.
More defensively minded investors seemed to take the opportunity to switch out of money market funds as their defensive asset of choice. Around £669m was puled out of these cash-like funds last month.
Edward Glyn, head of global markets at Calastone said: “Bond markets bottomed out in the middle of the month as yields touched highs last seen before the global financial crisis.
“This offered an enticing opportunity to switch out of safe-haven money-market funds whose returns mirror central bank policy rates and to lock into those multi-year high yields for the longer term.”
Multi-asset funds meanwhile raked in £2.7bn of net inflows, the second-best month on record behind the record £3.3bn of inflows last month, which Calastone attributed to a rise in demand for diversification.
Among equity funds, there was a rare inflow into UK portfolios, which enjoyed net inflows for the first time since November 2024 after more than a year and a half of consistent selling.
They bucked a trend, however, with investors mainly choosing to remove money from equity funds last month. The biggest loser was the emerging markets, with a net £390m removed.
These were followed closely by Asia-specialist (£232m withdrawn) and European funds (£213m). Global portfolios were flat on the month while US equity funds were the biggest winners, taking in £238m in net new money.
“Equity flows reflect that same caution – modestly reducing risk by withdrawing capital and then being picky on where to place it. Investors continued to favour the US, while pulling back from emerging markets, Europe, and Asia,” said Glyn.
“The inflow to UK equity funds is encouraging and may indicate sentiment towards domestic assets is becoming less negative, but it was narrowly focused, therefore it’s too soon to call it a broader trend. Overall, May looked less like a return to risk and more like a carefully managed re-entry into markets.”
Outflows from UK property funds also slowed markedly in May to £15m, the lowest monthly level since June 2024, thanks in large part to a reduction in sell orders, rather than an uptick in new purchases.