Analysis of UK Stock Funds Reveals Record Loss of $10 Billion in 2020
WHAT YOU SHOULD KNOW
- U.K. stock funds experienced the largest outflows ever recorded in the past eight years, with a total of £8.38 billion ($9.95 billion) withdrawn in 2020.
- Passive equity funds experienced their first year of net outflows, while global environmental, social, and corporate governance equity funds saw an increase in investment of £6.35 billion.
- Despite the growth in other markets, U.K.-focused funds have not seen the same positivity due to forecasts of the U.K. experiencing the most severe recession among major economies.
According to new research, U.K. stock funds experienced a record-breaking level of selling in 2019, surpassing the amount of selling in other major markets.
Calastone reported on Thursday that U.K.-focused equity funds had total outflows of £8.38 billion ($9.95 billion) in 2022, the largest outflows recorded in the eight years since the data has been tracked. Equity fund is a collection of investments that mainly invest in the stocks of businesses.
In comparison to the £2.65 billion withdrawn from other European stock funds, North American funds experienced outflows of £1.17 billion, and Asia-Pacific funds had £1 billion taken out.
According to the company, three-quarters of equity fund losses occurred during the third quarter, which coincided with a tumultuous period in British politics as former Prime Minister Liz Truss introduced a contentious “mini-budget”. Investment fund flows were the poorest in the past eight years due to a combination of high inflation, the conflict in Ukraine, and central banks shifting from monetary easing to tightening.
Passive equity funds experienced their first year of net outflows, which is a situation where more money is withdrawn than deposited, according to records tracking a stock market or market sector.
Global environmental, social, and corporate governance equity funds experienced a surge in popularity, with an additional £6.35 billion being invested, while emerging market funds also saw an increase of £647 million.
According to Edward Glyn, the head of global markets at Calastone, the recent interest rate hikes have dramatically affected asset markets, leading to investors seeking out lower-risk funds and opting to put their money into cash. He described the situation as having “turned asset markets upside down”.
He noted that sentiment had significantly improved in recent weeks, but cautioned that there was still a great deal of uncertainty surrounding future interest rates and global economic growth. He warned that it was possible that a bear market could return before the start of a new bull market cycle.
Despite the optimism in the markets, U.K.-focused funds have not seen the same positivity due to forecasts of the U.K. experiencing the most severe recession among major economies.
This week, State Street Global Advisors revealed that Europe-based exchange-traded funds (ETFs) have been resilient in 2022, with a net inflow of $88 billion mainly into “global developed” and U.S. “large-cap” funds. The research conducted by the company indicates that European ETFs have been able to withstand the current financial climate.
According to a statement, investors preferred investments in higher-quality exposures and energy stocks.
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