UK equity funds have been “haemorrhaging” money since 2016 – but 2023 is set to be the worst year on record.
The Investment Association (IA) is expected to release its results next week (5-9th February) which AJ Bell believes will showcase this fact.
The investment platform said there have been over £24bn of retail outflows from UK equity funds in the last two years.
AJ Bell said the cost-of-living crisis and higher interest rates weighed down on UK equity funds and predicted that outflows may continue.
AJ Bell head of investment analysis Laith Khalaf said: “UK equity funds have been haemorrhaging money since 2016, and this trend only seems to be accelerating in recent years.
“2023 looks like it is going to be the worst year on record for UK equity fund flows, based on data provided by the IA up to the end of November.
“Figures for December are due to be published tomorrow [next week], but an £815m net inflow into UK equity funds will be required for 2023 not to claim the crown for being the worst year on record. On current trends, that seems unlikely.”
In November 2023, £12.8m was withdrawn from UK equity funds by retail investors.
In contrast, during the financial crisis of 2008, only £1.6bn was withdrawn.
Khalaf added: “If domestic fund investors won’t invest in UK funds, it’s little wonder the UK stock market is struggling, and so many UK companies are seeking to list overseas.
“Over eight years of pain, more than £46bn has been withdrawn from UK equity funds by retail investors, with £24.7bn whipped out in the last two years alone.”
On the global market, he also believes UK equities has been a “laggard”.
“On the whole, investors looking at their annual statements over the last decade would have seen high levels of growth from their global funds compared to their UK holdings. Little wonder many of them have jumped ship.”
Additionally, the UK “has become a bit of an elephant’s graveyard for fund launches” and has now been overtaken by global and US funds.
Over the past five years, there have been 23 UK fund launches, compared with 42 US fund launches and 159 global fund launches.
In 2009, UK equity funds accounted for 51% of all equity fund assets in the IA universe, however, this has now reduced to 27%.
At the beginning of 2009, the average balanced fund held 55% of its equity holdings in the UK, now that has fallen to 25%. During the same time the US equity allocation has risen from 12% to 39%.
Khalaf said: “There may be more outflows from UK equity funds to come”.
