UK equity funds experienced their most favorable month in three years during July, as outflows slowed and a resurgence in investor interest was observed. Data from Calastone, which monitors fund flows through financial advisers, fund supermarkets, and wealth managers, revealed that net withdrawals from UK equity funds totaled £207 million last month. Despite ending the month with negative flows, July represented the best performance for UK equity funds since August 2021.
The positive shift came following the Labour Party’s general election victory on July 4, which resulted in a net inflow of £59 million into UK equity funds the day after the polls. This uptick in investor sentiment was further supported by the Bank of England’s decision to cut interest rates on August 1, marking the first reduction in four years. The rate cut was seen as a validation for those optimistic about the UK market.
Edward Glyn, Head of Global Markets at Calastone, noted, “One swallow doesn’t make a summer and we did still see outflows from UK-focused funds in July, but the improvement is consistent with the groundswell of positive commentary surrounding the investment case for UK equities.” Glyn attributed this improvement to several factors, including stronger economic performance relative to global peers and the stability offered by the newly elected government, which contrasts sharply with political instability in other major G7 countries.
Glyn also pointed out that recent market dynamics, including a significant rotation from high-priced US large-cap stocks to more affordable small- and mid-cap stocks, have benefited markets like the UK. “The same trend benefits markets such as the UK which are trading at a significant discount to international peers,” he said.
The challenge now is whether this momentum can continue and shift UK-focused funds from a net selling to a net buying position for the first time in years.
Despite a recent global market sell-off, which has significantly affected major US tech companies and caused daily declines in the FTSE 100, the optimism surrounding UK equity funds remains. On a broader scale, equity funds focused on all regions saw record inflows in July. North American equity funds accumulated £1.1 billion, while emerging market equities attracted £424 million. This strong performance contributed to a record net inflow of £13.6 billion from January to July, marking the best seven-month period in Calastone’s ten-year history.
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