Equity funds in the UK last month saw the second-largest monthly withdrawal since the 2022 Truss mini-budget, with £1.13 billion in net outflows.
The data, tallied in Calastone’s latest fund flow index, shows a sharp worsening from the £98 million of outflows recorded in June and a reversal of the inflows of £525 million in May and £1.5 billion in April.
Over the past three years, there has been an average monthly inflow of just over £1 billion.
The redemptions in July were broad-based, with every major equity-fund sector seeing outflows in July, except for funds focused on Europe.
There was a notable bearishness toward US equities, with the first month of outflows since October 2024.
"Although most geographies saw outflows in July, selling is mainly a US story," said Edward Glyn, Calastone's head of global markets.
"Global equity funds typically have 60-70% weightings in US equities nowadays so outflows here reflect similar sentiment to North American funds.
"US stocks are currently the most expensive they have ever been compared to their revenues (3.2x) and at their highest since the dot.com bubble against a range of measures such as US GDP and corporate earnings.
"The rally has been driven by a narrow cadre of tech names, and investors clearly feel that markets priced for perfection in times as volatile and uncertain as these are an increasingly dangerous place for their capital."
In contrast, Europe-focused funds attracted £280 million in inflows, benefiting from capital rotation away from US-heavy strategies.
"Investors must always decide whether to roll with momentum or turn contrarian. The contrarian view is starting to win out, at least as far as the US market is concerned," said Glyn.
"That is what is likely to make this month of selling different from last October, when booking profits purely for tax purposes motivated investors. That capital was immediately reinvested. It remains to be seen whether investors will stay on sidelines in the current market."
A notable drop in buy orders for passive equity funds, especially US-weighted index trackers, contributed significantly to the overall outflows.
Despite this shift, passives continued to outperform active funds in terms of investor preference.
Glyn added: "Passive funds remain far more in favour overall relative to active funds, but an apparent reluctance to commit more cash to US equities, particularly in index funds weighted heavily to a handful of stocks, meant even passive global and US funds saw outflows.”