Demand for mutual funds dips as nervous UK investors favour ‘rainy-day’ savings over increased risk asset exposure

Rainy day

Mutual funds across all asset classes received only half of their usual monthly inflows in September, as growing uncertainty prompted UK investors to direct money into savings accounts rather than riskier investments.

Investors allocated GBP1.1 billion into funds in September, half the long-run average, according to UK-based data firm Calastone. 

This is despite the record additional GBP77 billion added to savings accounts in the first half of 2020, at near-zero interest rates.

The weak appetite for mutual funds comes as the UK glimpses an uncertain economic future, facing both the possibility of a second wave of coronavirus, which has already caused government debt to spiral above GBP2 trillion for the first time, and the potential for a no-deal Brexit weakening the trading environment.

“Investors are nervous,” says Edward Glyn, head of global markets at Calastone, adding that “the vast sums of cash accumulating in households’ savings accounts are not finding their way into asset markets as savers both add to their rainy-day funds and fret about taking on more investment risk at a time of such uncertainty”. 

“Even so there are clear bright spots and clear no-go areas,” Glyn continues, noting that appetite for equity funds reached its highest level since May. 

Equity funds received “muted” inflows of GBP385 million in September, as investors cut back on the capital they were adding to safe-haven bond funds and mixed asset funds in September.

Fixed income funds took in only GBP193 million in September, and mixed asset funds received only GBP117 million, less than a third of their monthly average for the last year.

Among equity funds, beneficiaries included index funds which enjoyed GBP747 million of inflows, while active funds suffered a fourth consecutive month of outflows, totalling GBP362 million in September.

ESG equity funds also received GBP588 million of inflows, while traditional equity funds without an ESG mandate suffered outflows of GBP203 million.

“The strong demand for ESG funds shows that an interesting story can still drive investor demand, while the appetite for global funds suggests that investors recognise the value of diversifying their equity investments at a time when unexpected good and bad news can come seemingly from any direction at any time,” says Glyn.