The most recent Fund Flow Index from Calastone, for month end March 2022, shows the impact of the conflict in Ukraine on confidence in both equity and fixed income funds.
Equity funds experienced the biggest outflow in six years, with £1.53 billion withdrawn from equity funds in March. This was the largest outflow since July 2016, immediately after the Brexit referendum. The outflows were driven by active selling out of funds, not a buy strike. The weekly flows reflected the situation in Ukraine, with outflows increasing in weeks one to three, but tailing off in week four when the Ukraine resistance made gains against the Russian forces.
Almost every geographical category of equity funds saw outflows, with global equity funds hardest hit with total outflows of £992 million. UK equity funds, which have seen outflows for 22 consecutive months, saw the capital withdrawn fall to the lowest level in seven months, with the heavy weighting of oil and commodity stocks offering some protection against the negative sentiment.
Funds in the ESG sector continued to see inflows, as the sector remains popular with investors, but inflows of £136 million were substantially lower than the average monthly inflows of £798 million over the last twelve months.
Since the start of the Covid-19 pandemic fixed income funds have seen inflows, up until February 2022 when inflation fears led to outflows of £517 million. In March 2022 the outflows dropped to £274 million, with concerns over inflation still weighing on investor sentiment.
Real estate funds also suffered net outflows, but mixed asset funds had inflows in line with the long-run average.
Edward Glyn, head of global markets at Calastone said: “The world’s major stock markets were very volatile in March, but they have mostly regained the losses they sustained when Russia attacked Ukraine on 24th February. This has not been enough to reassure UK fund investors.
"Global risks are rising – growth prospects have deteriorated, and a recession is now a possibility in many developed countries. Inflation is taking hold, living standards are being squeezed and government budgets are also under pressure. Against this backdrop, it’s easy to see why March saw the largest net outflows from equity funds in almost six years and why bond funds are out of favour too."
