UK fund outflows slowed sharply in February, according to new data from the Investment Association, offering a brief reprieve after a rocky start to the year.
Investors withdrew £562 million from retail funds, compared to a much steeper £3 billion outflow in January. But the shift from panic to pause reflects mounting caution, not renewed confidence.
The backdrop is complex. Donald Trump’s tariff threats are starting to bite, raising fears of higher inflation and renewed volatility.
Central banks appear to be backing away from earlier plans to cut interest rates, and in the UK, rising household bills and tax changes are squeezing both consumer and investor sentiment.
Equities bore the brunt of investor nervousness again in February, with £1.6 billion withdrawn, including £1.4 billion from UK funds alone.
It’s the second consecutive month of heavy selling in UK stocks, as domestic investors continue to favour global and North American markets.
Despite that, tracker funds - which typically mirror the performance of large indices - recorded £1.8 billion in inflows, showing that many investors are still looking to equities but want cheaper, less risky access.
Most of that money went into North American and global funds, even as the US market faltered in early 2025. The S&P 500 fell 4.6% in the first quarter - its worst performance since 2022 - dragged down by a correction in the so-called Magnificent Seven tech stocks.
Actively managed equity funds continued to suffer, losing just under £3 billion. The data suggests investors are increasingly favouring passive approaches, especially during times of uncertainty.
Meanwhile, mixed asset funds enjoyed their strongest month in over a year, attracting £409 million. These funds, which blend equities and bonds, are seen as a safe middle ground when markets get choppy. Short-term money market funds also saw healthy inflows of £304 million, as did volatility-managed strategies.
Fixed-income funds continued to see modest interest, with £121 million in net inflows. Government bond funds led the way, attracting £185 million.
On the downside, responsible investment funds - which had been gaining traction in recent years - saw net outflows of £573 million. It was a sign that even sustainable strategies aren’t immune from broader market jitters.
Miranda Seath, Director of Market Insight at the Investment Association, warned that investors may remain on the sidelines until inflation and interest rate policy become clearer.
“The bigger issue is that uncertainty may lead investors to sit on their hands,” she said, adding that cash savings could rise at the expense of long-term investment."