British investors withdraw a record $2.7 billion from equity funds in September

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By Elizabeth Howcroft

LONDON (Reuters) – UK-based investors withdrew a record £2.4 billion ($2.74 billion) from equity funds in September, fund network Calastone said on Wednesday.

The net outflows make September the worst month in what is already its worst year for equity funds, Calastone said.

Funds focused on UK equities have been hit the hardest, Calastone added, with sales worth £694m, marking their 16th straight month of outflows. US equity funds also saw the largest outflows on record.

The outflows underscore a lack of investor confidence in the UK this year, a trend exacerbated in recent weeks by the UK’s September 23 “mini-budget”, which included high uncovered tax costs pushing government bond yields in skyrocketed and the pound plummeted.

“The near-permanently frosty stance on UK assets shows no sign of thawing,” said Edward Glyn, Calastone’s head of global markets.

Total outflows from equity funds reached £4.7bn in the third quarter, more than the amount withdrawn in all of 2016.

Global markets have taken a hit in recent months as major central banks hike interest rates to combat high inflation even as economic growth slows.

“The rise in global bond yields is causing a dramatic repricing of assets of all types,” Glyn said.

Glyn attributed record US outflows to interest rate sensitivity in growth stocks, saying emerging markets have been hurt by the prospect of a recession and a stronger dollar, and citing a loss of momentum in China to explain outflows in the Asia-Pacific region .

Aside from equities, flows into fixed income funds turned “very negative” in the last week of September as markets reacted to the UK government’s financial plans, Calastone said.

Funds with a focus on environmental, social and governance (ESG) also posted losses, with their first overall outflow in more than three years, Calastone said.

Property funds also saw significantly higher outflows in September, with a net outflow of £89m driven by a slump in buying interest, Calastone said. Glyn said this was “not a property-specific issue.”

CHART: Equity flows from UK funds (https://fingfx.thomsonreuters.com/gfx/mkt/jnpweqjrjpw/UK%20funds%20equity%20flows.png)

($1 = 0.8771 pounds)

(Reporting by Elizabeth Howcroft; Editing by Alexandra Hudson)

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