UK investors last month pulled the largest amount from equity funds since the 'mini Budget' convulsions, with demand for fixed-income investments growing.
Roughly £662mln was removed from equity funds in June, according to data from Calastone, which said it was one of the top ten worst months for equity fund outflows on its records.
Investment bank Citi said its fund flow tracker data suggested that despite higher markets so far this year, European traditional asset managers saw continued net outflows in the second quarter.
Meanwhile, inflows continued into fixed-income and money market funds, Calastone found, with £880mln into the former and £503mln the latter as investors continue to search for safety and yield.
For fixed-income funds it was the second-best month on record after the Covid-inspired flight to safety in March 2020.
Over the last 12 months investors have withdrawn £3.65bn from equity funds and poured £7.29bn into fixed income, plus another £2.44bn into money market funds.
Money market funds, which invest in a basket of short-term cash deposits and money market instruments with the aim of beating the Bank of England base rate, are seen as offering a safe haven and high yields, with the short time to maturity of their investments generally preventing much volatility.
“Fixed income funds and their money market cousins have not looked so attractive since before the global financial crisis,” said Edward Glyn, head of global markets at Calastone.
“At the same time, recession fears are stalking equity and property markets – investors are nervous. The result is a flight to safety.
“Money markets currently enable investors to earn an income of 5% or more at very low risk, while fixed income funds, which invest in longer-dated bonds than money market ones, offer the chance to lock into the highest yields in years.
“They now offer both income today and the prospect of capital gains when the credit cycle turns and market interest rates fall back.”
Some of the UK's largest fund supermarkets also confirmed the demand for fixed income and money market funds.
Investors on the lookout for cash-like investments on the Interactive Investors platform plumped for the Royal London Short Term Money Market fund, which rose to second most popular fund in its top 10 most-bought fund rankings for June.
The Royal London fund currently yields around 4.5%.
However, the nine other funds on the list were equity funds and ETFs.
At AJ Bell, none of the top funds were dominated by ETFs, mostly tracking the S&P 500, FTSE 100 or global indices.
Fundsmith Equity was the most popular fund on both platforms.
Based on the fund flow tracker data, Citi analyst Nicholas Herman said his team sees potential positive catalysts for Abrdn PLC (LSE:ABDN) - although he is still cautious on 12-month view - and Man Group PLC (LSE:EMG), with a 'negative catalyst watch' on Jupiter Fund Management PLC (LSE:JUP).
In the context of lower-for-longer earnings for the fund managers and range-bound markets, the Citi analyst said he remains "relatively more cautious" on traditional fund managers versus wider European diversified financials, preferring exchanges and alternatives.