Investors ditch UK equity funds in record-breaking month

UK equity funds see record-breaking outflows as bond funds register interest.

Equity funds, which  invest in company shares, saw investors withdraw almost £3 billion in August, according to the Investment Association.  

For the trade body this is a record monthly outflow, and contrasts with the £1.3 billion invested in these funds in August 2021.

“While August is traditionally a quieter month for fund sales, political and economic uncertainty continued to leave savers navigating challenging market dynamics,” said Chris Cummings, Chief Executive at the Investment Association.

Of this £3 billion, UK equities suffered the greatest outflow of £1 billion. In comparison, global equities saw withdrawals of £828 million.

“Outflows from equity funds rose as the outlook for economic growth globally continued to slow, taking total outflows from funds to £2.6 billion compared with the modest -£129 million in July,” said Cummings.

However, bond funds, which are generally seen as a safer investment, saw an inflow of just over £1 billion in August. 

“With market dynamics in a state of flux, we could see investors react to the surging yield on gilts and UK corporate bonds or bide their time until we see a period of relative calm,” Cummings said.

Given recent market volatility, putting your money into a savings account where it can earn a guaranteed rate of interest could be worth considering.

Inflation is still high, and if it rises further then this could further weaken UK equities. To combat inflation, the Bank of England is expected to raise the base rate further, which could spell additional interest rate hikes for the best savings rates on the market.

With that being said, those considering a savings account should consider the competition to ensure they are receiving the best rate possible.

According to research from Hargreaves Lansdown, about half of the people they surveyed said they would keep their savings with the same bank where they hold their current account. This is because they believe it is easier to open and access their money.

However, many of the top rates lie with challenger banks and building societies.

“Across the variable and fixed cash saving markets the biggest high street banks fall way behind and savers would be wise to reconsider their loyalty,” said Rachel Springall, Finance Expert at Moneyfacts.

“There is little reason to keep cash saved within an easy access account with them unless it’s a small amount for convenience purposes, but even then, it’s easy to switch elsewhere for a better return,” she explained.

With some easy access accounts still paying as little at 0.01%, Springall encouraged savers to be proactive and chase down a better deal. Especially when the top easy access account pays 2.35% AER at the time of writing.