Some £642mn was withdrawn from retail funds in January, the highest level since March 2020, as global markets wobbled amid high inflation and interest rate rise concerns.
This is compared with inflows of £2.3bn in December, and £3.3bn invested in January last year.
Equity funds were the hardest hit with £1.3bn redeemed in January, driven mostly by £1.6bn in outflows from UK equity funds, and £719mn from North American equity funds, according to data from the Investment Association.
Global equity funds continue to be the most popular among the IA’s equity sectors, though net inflows dropped from £832mn in December to £671mn in January.
Markets rocked in January as central banks signalled their intention to raise interest rates numerous times over the year and questions were raised over a potential transition from a growth to a value cycle.
Inflows of £820mn were seen in money market funds, which the IA said showed investors turning to cash-like funds in anticipation of repositioning their portfolios.
Most of this investment was into short-term money market funds, with net inflows rising from £557mn in December to £838mn in January this year.
Chris Cummings, chief executive of the IA, said caution saw investors opt for diversified funds to help mitigate risks, and the strong sales to short-term money market funds showed savers are waiting to see how markets will develop.
“Rising inflation and market uncertainty cast a shadow over the start of the year in the fund market,” he added.
Investors also pulled money from fixed income funds, with the sector seeing net withdrawals of £76mn, down from £153mn and £528mn invested in December and November 2021 respectively.
One of the lone well-performing sectors was mixed-asset funds, which saw net inflows of £335mn, up from £79mn last month.
Much of this was into mixed investment 40-86 per cent shares funds, and withdrawals from 20-60 per cent mixed share funds slowed from £458mn in December to net inflows of £3mn in January.
Emma Wall, head of investment analysis and research at Hargreaves Lansdown, said market volatility continues to increase, and the recent war in Ukraine has added to the turbulence.
“Daily market moves are concerning, but trying to transact in periods such as these invariably leads to over-trading and capitalising losses,” she said.
“Investors should try to look beyond these events and focus on their long-term goals.”