UK funds had in 2022 worst year of outflows since at least 2015

UK funds had in 2022 their second consecutive year of outflows and their worst year of outflows since at least 2015, according to a new report.

The Calastone Fund Flow Index published on Thursday found that UK funds saw net outflows of £8.4bn in 2022, the worst year since the Index began in 2015.

UK funds saw outflows in every month last year with June and November recording sales of over £1bn while only March had outflows of less than £300m.

Last year was the second consecutive year of UK outflows after a 2021 that was in the black until August but saw late year outflows wipe out early year optimism.

The Calastone report suggests that, globally, equity funds had their worst year on record, with £6.3bn of outflows and only their second year of outflows since 2016.

More recently, some optimism has returned with global funds (but not those in the UK) seeing inflows in November and December from investors hopeful that central bank rates increases were nearing an end.

Edward Glyn, head of global markets at Calastone, said: “Sentiment has improved markedly in recent weeks, but there is enormous uncertainty over the future course of interest rates and economic growth around the world and we may yet see the bear roar again before the bull market cycle can begin anew. The expectation that the UK economy will suffer the worst recession among major economies has prevented the current burst of optimism spreading to UK-focused funds, however.”

Globally, passive equity funds suffered their first year of outflows on record (down £4.45bn) as passive funds performed for the second year running worse than their active alternatives.

Global funds, comprising equity and fixed income, fared better, attracting inflows of £4.9bn, thanks entirely to environmental, social and governance (ESG) strategies, the Calastone report concluded.

Glyn added: “It’s tough for the industry. Fund management groups were hit with a double whammy – the supply of capital shrank as bond and equity markets fell, and the replenishment rate either reduced or went into reverse as investors either slowed their buying or fled for the safety of cash. The resulting reduction in assets under management brought a significant hit to revenue.”

Hedge funds’ confidence for the next 12 months hit a two-year low at the end of last year, according to a report published on Wednesday by an alternative investment trade body.