Equity fund inflows hit record levels in 2021, shows Calastone data

Savers added £1 bn ($1.35 bn) in new cash to their equity holdings in December, taking the 2021 net inflow to a record £14.2 bn, according to the latest Fund Flow Index (FFI) from Calastone.

Last month the firm’s data showed that the emergence of the new Omicron variant had prompted an ‘abrupt’ £83 mn sell-off of equity fund holdings in just two days at the end of November.

Omicron fears have since subsided, however, with the result that investors became ‘much more enthusiastic about the prospects for equities,’ says Calastone in its latest FFI report. December net inflows were double those seen in November, it adds.

Commenting on the latest data, Edward Glyn, head of global markets at Calastone, says that ‘having paused in late November to consider the possible impact of the Omicron wave of Covid 19, investors have so far cautiously judged that its impact will be significantly less severe in the UK and abroad.’

The biggest shift in investor sentiment ‘was evident in European and North American funds,’ adds Calastone. Funds focused on those regions saw ‘heavy selling’ in October and November – something that was replaced by modest inflows last month.

But the firm says that for what it describes as the most ‘unloved’ category – UK-focused funds – there was ‘no respite’.

‘Economic wobbles in the fourth quarter, political instability, rising interest rates, Brexit chaos and renewed Covid-19 restrictions in parts of the country mean investors prefer to look elsewhere,’ Calastone notes. ‘Outflows have slowed a little, but we do not expect to see UK-focused flows shoot to the top of the rankings in the near future.’

The UK did, however, see a reduction in outflows from equity funds, though December still saw £326 mn in outflows from funds with a UK focus. This marked the seventh consecutive month of outflows from the category, says Calastone, adding that geographically, no other region has fared as badly.

‘UK-focused funds shed £1.1 bn for the whole of 2021, the worst for any geographical category,’ explains Calastone. ‘Equity income funds, which are heavily allocated to UK equities, saw outflows of £4.3 bn, their sixth consecutive year to shed capital.’