The highly fragile nature of investor confidence has been revealed in the latest fund flow figures released by the Investment Association.

In June UK retail investors pulled £4.5 billion from open-ended funds. This represents the most significant outflow since March 2020, which marked the onset of the pandemic.

Equally disconcerting, there have been net outflows in five of the first six months this year.

Investment Association chief executive Chris Cummings said: ‘Savers are pre-empting slowing economic growth and preparing for further interest rates rises as we enter new territory for markets.

‘Higher rates mean a weaker performance outlook for the high-growth companies that helped to fuel the bull market of the last decade. (The latest) equity fund outflows indicate that investors are looking at ways to better balance their savings.’

Cummings added: ‘All major asset classes experienced outflows in June as investors continue to adjust to the end of the low interest rate era. Investors turned to lower-risk asset classes as a bulwark against rising market uncertainty.

Equity funds witnessed the largest net outflows at £2.27 billion. Funds experiencing the largest redemptions in June included Vanguard FTSE UK All Share (BPN5P78), BlackRock Absolute Return Bond Fund (B618DS3), BlackRock Natural Resource Growth and Income Fund (B6865B7) and Fundsmith Equity (B41YBW7), according to Morningstar and Numis.

Conversely inflows were noted at several North American funds including iShares North American Equity Index (B7QK1Y3) and HSBC American Index (B80QG61).

In the absolute return space, LF Ruffer Diversified Return (BMWLQT5) and TM Tellworth UK Select Fund (BNY7YM7) saw notable inflows.

The best-selling IA sector in June was volatility managed funds, which attracted net inflows of £248 million.

After gaining new highs in January, markets plunged in March as economies across the world went into lockdown and have since made a patchy recovery at best. The Vix index, a widely used a measure of volatility on stock markets, hit a record high in March as fears about the impact of Covid-19 ramped up.

Volatility managed funds aim to provide investors with a smoother journey and are designed to avoid the sharp swings in performance that have caused many investors sleepless nights.

Among other asset classes, money market funds experienced the second biggest outflows in June at £1.11 billion, while fixed income funds saw outflows of £653 million.

DISCLAIMER: Editor Daniel Coatsworth owns units in Fundsmith Equity

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