Vaccine rollout helps end dry spell for UK equity fund inflows

Investment funds that invest specifically in UK-listed companies turned a corner in February, with the rapid rollout of Britain’s Covid vaccination programme helping to spur positive inflows for the first time in eight months.

According to data from Calastone, which tracks money entering and leaving funds in the UK from financial advisers, fund supermarkets and wealth managers, UK equity funds gathered £145m of new money last month.

The modest inflows reversed a prolonged period of withdrawals, which has seen investors pull £2.2bn from UK-focused funds since May last year.

The overall haul for UK equity funds last month would have been higher, had it not been for investors reacting to the government’s cautious plan to get Britain back to some sort of normality post-pandemic. During the final week of the month, investors withdrew £19m from UK equity funds, according to Calastone. The week also coincided with turmoil on global bond markets.

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Edward Glyn, head of global markets at Calastone, said: “Sentiment on UK equity funds is also going to remain closely linked to the recovery from the pandemic and whether the cautious plan to lift lockdowns starts to slip.

“UK funds have been so out of favour for so long that some rotation is clearly taking place now too.”

Calastone data showed that equity funds across all categories ended February in positive territory. The biggest winners were emerging market and Asia-Pacific equity funds, which both notched up their second-best month for inflows on record, pulling in £177m and £215m respectively.

“For their part, emerging markets and Asia benefit when the dollar is weak because it increases their room to boost their economies with extra spending while keeping a lid on domestic inflation. It also reduces the burden of dollar debt that many less developed countries carry,” said Glyn.

Despite rising bond yields, investors continued to plough £846m into fixed income funds during February. Meanwhile ESG equity funds continued to attract new money, posting record inflows of £809m for the month.

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