Fixed income funds recorded significant outflows in August, shedding £516m, which is “surprising” given the gains in bond prices, according to a global network.
The bond outflows were the third worst month on Calastone’s record and came despite a sharp fall in US bond yields as markets anticipated faster and steeper cuts in US interest rates.
This pushed US bond prices up while the bond market remained broadly steady in Europe and the UK, according to the network’s latest Fund Flow Index.
Amid August which saw world markets slide in the first few days, risk-averse investors also sought out the safe-haven money-market funds. Net purchases were £593m, the highest level since August 2023.
However, the short-lived market panic had a big impact on equity fund inflows which fell to £545m – down 75% month-on-month. This is also their lowest level since November 2023.
Calastone noted that “there were still inflows”, with investors selling equity funds “very modestly” during the sharp falls with a net £206m pulled from capital.
But this was followed by renewed buying, with investors adding a net £592m to equity funds in the following five days. Later in August after markets had bounced back, some investors opted to take profits which led to modest renewed outflows in the second half of the month.
The impact was felt across most equity fund sectors, with inflows down by just over a third for global equity funds (-35%) to £639m, by half for North American equity funds (-50%) to £564m, and by just under three fifths (-58%) for European funds to £155m and similarly for emerging market funds (-59%) to £174m.
Meanwhile, Asia-Pacific funds suffered a 16th consecutive month of outflows, which almost quadrupled (+260%) month-on-month to -£184m.
Turning to UK-focused equity funds, outflows were on the up in August after July had seen their least-bad month in three years. Net selling of -£510m was more than double the July total, but this was still well below the -£660m monthly average since outflows began in earnest in September 2021, Calastone noted.
‘Nerves have clearly been rattled’
Edward Glyn, head of global markets at Calastone, said: “Investors flinched when global markets convulsed in early August, pushing equity prices worldwide down sharply and hitting ‘Magnificent Seven’ tech names in the US especially hard.
“They initially responded by pulling some cash from equity funds, but there was no wholesale rout. In the first three days of the month, equity fund trading volumes across our network spiked by around a third as nervous sellers took flight while opportunistic buyers simultaneously took the plunge. Between them, the elevated levels of selling and buying boosted two-way trade.
“Outflows turned to inflows as markets calmed and sellers melted away, but nerves have clearly been rattled. What’s more, once markets rebounded, investors chose to sit on the sidelines in the second half of the month, clearly wary of renewed turbulence.”
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