Investors withdrew £3.4bn from UK funds in March as tighter monetary policy and the outbreak of war in Ukraine spooked markets.
The redemptions were concentrated in fixed income funds, which saw net outflows of £3.3bn in the month, according to the Investment Association.
Chief executive of the IA Chris Cummings said although Russia launched its invasion of Ukraine in February, the economic ramifications of the conflict became clearer in March.
“Outflows from European equity funds accelerated sharply to £505mn, as investors considered the risks of Europe's dependence on Russian commodities," he said.
However, the month proved to be a 'story in two parts', as outflows were balanced by many investors rushing to use their Isa allowances and seeking potentially safer heavens in diversified funds, he added.
Mixed asset funds were the best-selling asset class in March, with £429mn in net sales, compared with withdrawals totalling £182mn the month before.
Head of investment analysts at AJ Bell, Laith Khalaf, said flows into mixed asset funds tend to be less affected by sentiment than other areas, because a lot of regular pension contributions and advised investments find their way into these sectors.
“Investors may also be craving the diversification provided by mixed asset funds,” he added.
“In a world where it’s extremely difficult to pick out which assets are going to prosper, having irons in a lot of fires makes a good deal of sense.”
Khalaf said not only will the war in Ukraine be worrying investors, rampant inflation and rising interest rates are also playing leading roles.
“Fixed income stocks are today yielding more than they have for some considerable time with the US ten year government bond trading on a yield of just under 3 per cent,” he said.
“But bond investors will be wary of the continued pressure exerted by rising interest rates and quantitative tightening on bond prices, and will be thinking that by waiting it out, they can protect some capital and lock into a higher yield further down the road."
Top fund buys in April on Hargreaves Lansdown’s platform
Baillie Gifford American
Baillie Gifford Managed
IFSL Marlborough UK Micro-Cap Growth
JPMorgan Emerging Markets
LF Lindsell Train UK Equity
Lindsell Train Global Equity - Distributing
Rathbone Global Opportunities
Schroder Managed Balanced
Troy Trojan (Class X)
Source: Hargreaves Lansdown
“At some point yields will become tempting enough to lure investors back into bonds, but until they are able to see past a spell of rising interest rates, bond fund sales are likely to remain under the cosh.”
But there is positive news around, said Emma Wall, head of investment analysis and research at Hargreaves Lansdown.
“It is worth noting however that April flows data has been more positive – at least amongst HL clients,” she said.
“We have seen inflows over the past month, particularly into broad-based active and passive equity funds, such as Rathbones Global Opportunities and FTSE All World ETFs.
“The IA data also shows responsible funds have bounced back in popularity in March, and recent fund flows on the HL platform show this too, particularly into clean energy funds, investment trusts and ETFs", Wall added.