UK investors withdrew capital from equity funds at pace in July, according to the latest Fund Flow Index from Calastone, the largest global funds network.
Equity funds suffered net outflows of £1.13bn in July, up from outflows of £98m in June. July’s outflows were the largest from equity funds since the infamous Truss Mini-Budget in September 2022 with the exception of October 2024 when there was a bout of profit crystallisation followed by immediate reinvestment ahead of feared Capital Gains Tax (CGT) rises.
Unusually, July’s large outflow was not concentrated in a handful of sectors. Instead, selling was broadly based: every major equity-fund sector saw outflows in July, except for funds focused on Europe.
Global equity funds saw their second consecutive month of net-selling, the first time on Calastone’s 10.5-year record that this has happened. Outflows from this category are rare – only six individual months since the beginning of 2015 have ever seen net selling. In July investors withdrew £281m after £365m in June.
North American funds also saw outflows in July. Investors sold down £330m, the first month of outflows since October 2024 (driven at that time by expected CGT changes in the Reeves budget). Investors withdrew £543m from UK-focused funds in July – once again the hardest hit fund sector during the month – though this was well below the average monthly outflow of £858m over the last three years. Funds focused on Asia-Pacific, emerging markets, Japan, and specialist sectors all saw outflows too.
Europe stood out. Investors added a net £280m to their European fund holdings.
Edward Glyn, head of global markets at Calastone said: “Many stock markets around the world are currently trading at or near record levels – the UK, US, Europe, Japan and Singapore are just a few examples.
Investors must always decide whether to roll with momentum or turn contrarian. The contrarian view is starting to win out, at least as far as the US market is concerned. That is what is likely to make this month of selling different from last October, when booking profits purely for tax purposes motivated investors. That capital was immediately reinvested. It remains to be seen whether investors will stay on sidelines in the current market.
Although most geographies saw outflows in July, the selling is mainly a US story. Global equity funds typically have 60-70% weightings in US equities nowadays so outflows here reflect similar sentiment to North American funds. US stocks are currently the most expensive they have ever been compared to their revenues (3.2x) and at their highest since the dot.com bubble against a range of measures such as US GDP and corporate earnings. The rally has been driven by a narrow cadre of tech names, and investors clearly feel that markets priced for perfection in times as volatile and uncertain as these are an increasingly dangerous place for their capital.
If we look at other geographies, outflows from UK funds have actually slowed again month-on-month even as bearishness on equities overall has grown markedly, which means July’s figure should be interpreted is an improvement in sentiment towards UK stocks. Meanwhile, European funds are clearly benefiting from rotation out of US-heavy peers.”
The overall £1.13bn outflow was driven in particular by a sharp drop in buy orders for passive equity funds rather than a big increase in selling; net selling of active equity funds did increase, rising £150m higher month-on-month to £1.59bn, but the most of increased outflows month-on-month was due to a buyer’s strike on passive funds.
Edward Glyn added: “Passive funds remain far more in favour overall relative to active funds, but an apparent reluctance to commit more cash to US equities, particularly in index funds weighted heavily to a handful of stocks, meant even passive global and US funds saw outflows.”
Among other asset classes, wobbly bond markets meant outflows of £122m, driven mainly by withdrawals from sovereign bond funds, while safe-haven money market funds continued to enjoy inflows – steady at £217m month-on-month.
