Investors sell out of European and UK equity funds as second wave of lockdowns sweeps continent

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Investors sold UK and Europe-focused equity funds in October as governments battled to curb Covid-19 infections with another round of restrictions.

Across Europe, a record 1.5 million new cases of the virus were registered last week, prompting Germany, France, and Belgium to declare nationwide lockdowns.

Equity funds focused on UK were the worst hit, shedding GBP358 million of outflows over the month according to data from Calastone.

The UK has also announced a new national lockdown, which has done further damage to investor sentiment, already suffering from the failure of negotiations with the EU to agree a trade deal.

Income funds, which are disproportionately exposed to UK equities, also suffered their worst ever month as GBP763 million left the sector. 

Meanwhile, European equity funds suffered outflows of GBP69 million, to the benefit of funds focused on North America and Asia, which saw inflows.

Data from Morningstar shows that European funds performed poorly in October, with Europe-focused funds from Robeco, Schroders, Janus Henderson, Fidelity, and J O Hambro all ranking among the 10 lowest returning funds for the month. 

Edward Glyn, head of global markets at Calastone, says that investors “voted with their feet” in October.

“The fact that UK-focused funds are suffering so much more than their European counterparts, despite the pandemic inflicting lockdowns equally severe in many parts of the continent, suggests that investors view the double whammy of Covid-19 and Brexit as uniquely damaging for Britain,” says Glyn.

Equity funds across all geographies were out of favour and registered their first outflows in three months, losing a net GBP82 million of capital, as investors shunned risk assets for safer counterparts. 

On the other hand, lower-risk bond funds had their best month since last November, gaining GBP716 million of inflows. In particular, ESG fixed income funds benefited from record inflows over the past five months, adding another GBP125 million of new capital in October alone. 

“Global markets have been nervy in the last couple of weeks as concerns over the global economy have grown, but investors have not shown the same fear they did in March at the resurgent pandemic,” says Glyn.

The trend away from equity was bucked by ESG equity funds, which garnered GBP542 million in inflows compared to GBP625 million of outflows for non-ESG funds. 

Index equity funds also enjoyed GBP378 million of new capital, whilst their active counterparts shed GBP460 million.

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