Retail investors pulled a record £1.8 billion out of UK equity funds in May, data from the Investment Association shows.
It marks the continuation of a trend that saw £13.6 billion withdrawn from UK equity funds in 2023 and £12 billion the year earlier.
IA attributes the outflows to “diversification of portfolios” as “investors and their advisors continue to reallocate outside of the UK, with strong inflows for global, Europe and North American funds”.
However, IA’s market insights and fund sector director Miranda Seath offered a slither of optimism: “Looking forward, there are reasons to be positive as we expect interest cuts in the UK and potentially in the USA later this year as inflation continues to fall.
“As outlook potentially improves, we will be keeping a close eye on how investors respond.”
British policymakers are at pains to rejuvenate London’s struggling capital markets, where delistings and private equity takeovers have ramped up and valuations have shrunk relative to the US.
The Financial Conduct Authority has announced an overhaul of the UK listing regime to help achieve this, with a simplified and streamlined process coming into effect at the end of this month.
But these proposed changes are “unlikely to have any impact on retail fund flows, which do not ebb and flow based on the number of companies listing in London”, said Laith Khalaf, head of investment analysis at AJ Bell.
Rather, “there are deep structural changes in the way retail investors buy funds which have led to the exodus from UK equities”.