Investors flee US and UK equity funds

Investors flee US and UK equity funds

Investors continued to withdraw hundreds of millions of pounds from UK equity funds in February, while there has been a sharp decline in sentiment towards the US market.

Data from the Investment Association (IA) covering the month of February, revealed investors pulled £510m from UK funds during the month.

This is much higher than the average level of withdrawals from UK funds over the past year, which is £222m.

Investors withdrew £31m from funds in the IA North America sector in February, compared with inflows into those funds over the past year of £103m.

Alan Miller, founder of wealth management firm SCM Private, said it may be time for investors to return to UK equities.

Mr Miller said: “It is understandable that some commentators think the recent trend of UK equities underperforming their international peers is part of a longer-term trend, but as with all investment decisions, it is vital to interrogate the fundamental data and see what the facts show.”

He added: “With my contrarian mindset, I think it is time to look at the UK afresh, especially as many investors appear to be very negative of UK equities, thereby creating an opportunity.  

"They seem to have forgotten that many of the largest quoted UK stocks are simply stocks that are quoted in London but are in fact global organisations with typically 75 per cent of their revenues derived from outside the UK."

He pointed out the UK is currently the most unpopular developed country among international institutional investors, according to the latest monthly Bank of America Merrill Lynch survey of investors.  

"UK equities are the least popular since the 2008 financial crisis and even bonds are currently hated less than UK stocks,” Mr Miller said.

The negativity around US technology stocks, and concerns about the impact of protectionism, have plagued the S&P 500 index of US equities since February.

Tom Walker, who runs the £213m Martin Currie Global Portfolio Trust, said many of the gains made by US equities over the past year have been made by big technology companies, so an under performance from those has significant implications for the entire US equity market.

Net retail sales overall fell from £3.7bn to £1.2bn in February, according to the IA data.

Strategic bond funds, which had been the most popular sector, retained the top spot, with net retail sales of £346m, but that was a dramatic slump from the previous level of £808m.

Adrian Lowcock, investment director at Architas said falling popularity of bond funds is not surprising.

“Given at the end of January bond markets became concerned that inflation in the US  was set to rise faster than anticipated and the US Federal Reserve would therefore have to raise rates faster than the markets expected.

"The concern in bond markets led to a long overdue sell off in equity markets. Whilst markets recovered quickly from the sell-off in February the return of volatility has been a reminder to investors not to be complacent.”