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Gloom starts to lift in the City with first monthly net inflow into UK equities since November 2024
Investors cut their exposure to equities in favour of bonds and mixed-asset holdings in May, according to fresh data released on Thursday by global funds network Calastone.
But London bucked the trend in what could be seen as an early sign that the gloom over the City may be lifting. Amid the wider global outflows, UK equities stood out with their first net inflows since November 2024 according to the Moorgate-based firm’s latest Fund Flow Index.
Calastone called it “a surprise reversal” for the City’s recent run of less rosy fortunes. But it came with a caveat.
The turnaround was “focussed on a handful large index funds”, making it too early to call the start of a wider trend. Nonetheless, it was a “notable break in trend after a prolonged period of domestic equity withdrawals” for London equities.
The wider pattern included “near record demand for mixed-asset funds in May and the strongest fixed income inflows in three years”.
It looked like a sustained effort to diversify portfolios at a time of pronounced geopolitical tension, amid the uncertainty of conflict, in the Gulf and Ukraine.
Surging yields pulled investors into debt funds, while they moved out of money market funds, in a switch-around in the fortunes of two assets often seen as safe havens at times of crisis.
‘Enticing opportunity’ to switch out of safe-havens
Edward Glyn, Calstone’s head of global markets, said “bond markets bottomed out in the middle of the month as yields touched highs last seen before the Global Financial Crisis.”
He added: “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.”
It was part of a wider diversification toward income-producing assets. There was a clear preference for mixed-asset funds. They added £2.7bn in May, the second-highest inflow on record, after last April’s £3.2bn.
Bond funds took in £877m in the month, with higher yielding funds standing out in the strongest move into such debt products since June 2023.
There were outflows of £257m from equity funds, led by emerging markets and European and Asian stocks. US equity funds stayed positive, amid the record run for New York indexes, led by the tech sector.
It was the third-worst month on record for money market funds, with £669m pulled out.
Glyn said May’s trading pattern “looked less like a return to risk and more like a carefully managed re-entry into markets.”
Calastone was founded in 2007 and processes investments worth around £300bn in a typical month, connecting 5,400 financial organisations in almost 60 countries. It is a subsidiary of the US firm SS&C Technologies Holdings.
Based at City Point in Ropemaker Street, it also covers ETFs, the popular passive-investment products which track a variety of indices and commodities, alongside other assets including money market funds.
It gives the firm a commanding view over trading across global markets.
The Fund Flow Index is put together from real UK trading data compiled via millions of buy and sell orders in individual funds, rather than opinions expressed by investors in surveys. It was launched in 2018, but has data that goes further back, to 2015.
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