Investors get £1bn of UK-focused funds ahead of recession

Investors netted £1.02 billion from UK-focused funds in November, making it the second-worst month on record, according to a study.

They are avoiding the UK for fear the recession will last longer than elsewhere, according to fund flow data provider Calastone.

In the past 18 months, £9.8bn net of UK-focused funds has been withdrawn and the November outflow has been exceeded only once before, in June 2022, it said.

“Fears about the possible length of the UK recession, rather than hopes that inflation will ease, dominate investor concerns about UK assets,” said Edward Glyn, head of global markets. “Despite the low valuations, you can barely give them away right now.”

The Calastone data comes ahead of full figures from the Investment Association, which this week reported net fund outflows from the UK in October at £792m.

The Bank of England and the Office for Budgetary Responsibility believe the UK entered recession in the third quarter of 2022 and won’t emerge from it until the end of next year.

While UK-focused funds were being pushed back, investors piled into global bond funds, with a net investment of £1.09bn in November. This was the largest monthly inflow in two years and the fourth highest on record.

Bond yields plunged in the month as investors smelled a turning point in the interest rate cycle, with expectations that the US Federal Reserve was beginning to rein in inflation and thus , it could stop raising rates sooner, or by smaller amounts.

Glyn said the optimism fueled a first net inflow into stock funds around the world for seven months. The path of US rates was a key driver of global markets.

However, investor pessimism about the UK does not appear to have been reflected in share price movements. Since the October 12 low, the FTSE 100 is up just over 10%, matching the S&P 500, while the more UK-focused FTSE 250 is up 14%. The Euro Stoxx 50, which tracks blue-chips in the eurozone, is up 18 percent.

Calastone connects fund managers with institutional investors, processing £250 billion of flows every month.

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