Retail investors withdrew GBP1.8 billion ($3.12 billion) from UK equity funds in May, the worst month on record for the unloved sector.
The figures add to a dismal trend for UK equity funds, which have seen eight years of continuous outflows, while underscoring the extent of the challenge facing the Labour government as it seeks to revitalise the country’s beleaguered capital markets.
Since 2016, GBP54 billion has been withdrawn from UK equity funds by retail investors, according to Investment Association data, with GBP13.6 billion withdrawn last year alone.
The latest numbers coincide with the publication of the Financial Conduct Authority’s much-awaited overhaul of the UK’s listing rules, part of a concerted effort to draw more initial public offerings to London following a dramatic drop in the number of new listings and a spate of high-profile departures to markets such as New York.
The new rules come amid much hand-wringing in the City over the fate of London as a global financial centre, as it suffers from less liquid markets after Brexit and a dearth of high-growth tech stocks.
The regulator’s proposed changes are “unlikely to have any impact on retail fund flows, which do not ebb and flow based on the number of companies listing in London”, Laith Khalaf, head of investment analysis at AJ Bell, said in a statement. “There are deep structural changes in the way retail investors buy funds which have led to the exodus from UK equities.”
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Of the US$11.9 billion ($15.99 billion) raised via IPOs in Europe this year through May, just over 2% was in the UK — the lowest in decades, according to data compiled by Bloomberg. That compares to an average share of 31% between 2012 and 2023.
Retail investors are also redistributing their portfolios given the rise of global benchmarking. UK equities make up only a small proportion of the world index and increasingly struggle to compete with the heft of the US stock market.
Investors and their advisers continue to reallocate outside of the UK, with strong inflows for global, European and North American funds, the Investment Association said.
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There has long been talk of government-led plans to pull the UK’s stock market out of the doldrums, including reorganising the country’s pension industry to encourage more investment in equities.
Rishi Sunak’s Conservative government also toyed with the idea of introducing a British ISA, designed to channel more funding into UK companies by giving high earners a tax incentive to invest their money in local stocks. However, the new Labour government hasn’t committed to introducing one.
