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Investors continue to flee UK equity funds

Investors continue to flee UK equity funds

Investors continued to flee UK equity funds in April despite the positive outlook for the country's economic recovery.

More than £1bn was withdrawn from UK large-cap and equity-income funds in April, according to data from Morningstar.

This means the run on UK equity funds seen of late continued. In February investors also withdrew about £1bn from the vehicles.

Lothar Mentel, chief executive of Tatton Investment Management, said he was surprised by the data as the prognosis for UK equities was more favourable than it has been previously.

He said: “The UK has actually done pretty well in the last couple of months, and if this cyclical recovery continues, and there's every indication that it will at the moment, then the outlook for the UK isn't so bad. It’s actually going to be one of those markets that if we get a strong global recovery, it will do quite well.

“I think [the outflows] are more down to the fact that a lot of the market looks at three and five year performance figures compared to other regions. And on that basis, the UK looks absolutely horrid.”

Darius McDermott, managing director at Chelsea Financial Services, added: “UK equities are definitely cheap relative to other asset classes and geographies, the Brexit cloud is now gone, and we’re well ahead in the race for vaccinations.

“Because of the vaccine rollout, UK GDP is already shooting up and inflation is high, so I’m surprised, because we are hearing more positivity generally around the UK.”

“We are starting to see more interest from our retail clients. And in our managed funds, we are starting to allocate a bit more to the UK.”

Within UK equity-income funds, Morningstar said active vehicles caused £742m in outflows, alongside a £411m net outflow from BlackRock’s ACS UK equity tracker.

The Trojan Income fund bore the brunt of the withdrawals, with £132m in outflows last month, which marked the ninth consecutive month of net outflows for the fund. It was considerably less than the £322m withdrawn in February however. 

Within the UK equity-income category, which are mostly active vehicles, Schroder Income bucked the trend and saw £162m in inflows in April. The fund saw consistent outflows from February to October last year, seeing the value of its net assets fall from £2.2bn to £1.5bn during the period.

Meanwhile about £4bn was invested into allocation and fixed income funds (£1.9bn in each) in the month.

Money market funds saw net withdrawals of £500m in April, and property funds saw net outflows of £66m.

sally.hickey@ft.com