UK equity flows surge on value rotation

Equity funds enjoyed their strongest inflows in March on record, according to the latest Fund Flow Index (FFI) from Calastone.

UK investors committed a net £2.96 billion to equity funds, surpassing the previous record, set during the post-crash bounce in April 2020, by more than a tenth.

Active fund managers had the most to celebrate, scooping over three-quarters of this new cash, enjoying their best month since July 2015.

Almost two-thirds of March’s new cash also flowed into global equity funds – a record £1.84 billion. Global funds have easily been the most successful equity category in Calastone’s index in recent years, both in terms both of the capital inflow and their score on Calastone’s index.

More than half the net new cash added to global funds has been to those with an ESG mandate in the last year. In March alone, global ESG equity funds garnered record new capital of £1.15 billion.

Total turnover in funds was also very high in March, soaring to a record £31.1 billion, around a quarter higher than the previous record set in March 2020 when global markets were convulsed by the wave of Covid-19 lockdowns sweeping around the world. High turnover indicates more switching between funds.

Edward Glyn, head of global markets at Calastone said: “For UK equities, the tide seems to have turned now. Bombed out stocks have come back into favour as the economy is poised to rebound on the back of the UK’s stand-out success in vaccinating against the coronavirus. This is driving inflows to UK equities on a scale we have not seen in a year.”

Part of the story is rotation, he added, as the UK is decisively a “value” market and with bond yields on the rise, value stocks have become more attractive to investors.

“We have noticed, by contrast, that tech-sector funds saw outflows in March – they are very sensitive to rising bond yields and are missing out on the equity fund-flow boom,” Glyn said.