Investors pulled £272m out of funds in the Investment Association UK Equity Income sector in October as investor sentiment on domestically focused funds continues to be negative.
UK equity income was the worst performing sector of all in the IA universe in October.
Sentiment towards equity funds was generally negative, with fixed income, multi-asset and funds classified as “other” all being more popular with investors than pure equity funds.
Funds in the “other” classification include total return funds and volatility managed funds.
It was the fifth straight month in which fixed income funds were the most bought. In particular, funds in the IA Sterling Strategic Corporate Bond sector were the most bought in the month.
Minesh Patel, an adviser at EA Solutions in London, said he prefers strategic bond funds as they have the flexibility to invest in different parts of the market.
The Japan, Europe and Global sectors were most popular with equity investors in the month, with the UK least popular.
Laith Khalaf, senior analyst at Hargreaves Lansdown, said: “Investors are ploughing record amounts into investment funds, but at the same time there is an exodus from UK equities, with over £2bn withdrawn from these funds so far this year.
"The root of this is no doubt the current cocktail of political and economic uncertainty enveloping the UK, combined with a stock market which is perceived to be propped up by a weak currency and loose monetary policy."
Mr Khalaf said the main beneficiary of the malaise towards UK equities, the fixed income sectors, continue to attract large sums of money despite the prospect of rising interest rates presenting a less favourable outlook for bond funds.
"There looks to be little value in the bond world at the moment, but in times of uncertainty money does flow towards fixed income securities, seemingly at any price," he said.
As 2017 closes and thoughts turn to the new year, Mr Khalaf said the ongoing Brexit negotiations add a "large dose of randomness into the prospects for asset class returns" - so investors shouldn't shun the UK altogether.
"In such a scenario it makes particular sense to maintain a diversified portfolio, though that still means holding some UK equities.
"Investors who shun the UK are not only losing diversification, they are missing out on exposure to some of the best fund managers around.”
David.Thorpe@ft.com
