- 32 consecutive months of net withdrawals of funds by private investors
- Savers took out more than £13.5bn in 2023
- The exodus is terrible for the UK stock market and the wider economy
Ask a fund manager investing in UK shares what their biggest problem is and the answer you’ll probably get is: bailout.
Investment gurus do not seek absolution for their sins, financial or otherwise. However, they point to a crisis of confidence in the UK stock market.
Redemption is the technical term for investors withdrawing their money from a fund.
In recent months and years, redemptions by small savers investing in UK shares have occurred on a worrying scale.
March was the 32nd consecutive month in which British private investors made net withdrawals from UK equity funds, according to the Investment Association.
Decline: In recent months and years, redemptions by small savers investing in UK shares have occurred on a worrying scale.
Savers took out more than £13.5bn in 2023, which was the worst year on record, on top of £12bn the previous year.
The exodus is terrible for the UK stock market and the wider economy. This level of redemptions means that fund managers have no cash available to invest in promising British companies.
In open funds, they have to resort to resources to return their money to savers.
In order to take advantage of a new and potentially profitable opportunity, they would have to sell an existing stake.
If an opportunistic bidder submits a low bid for a UK company, fund managers are pressured to accept it, because they need the cash.
Instead of backing British companies, small investors here are supporting foreign corporations, particularly in the United States.
It happened on a grand scale (in both senses of the word) at Coutts.
The posh private bank used by the Royal Family has taken more than £2bn of its clients’ money out of the London stock market and placed it abroad. Unpatriotic, perhaps, but it’s hard to blame anyone, given the respective results.
There is no great mystery as to the attractions of the US market.
Savers around the world want to buy tech stocks from the Magnificent Seven: Amazon, Alphabet, Nvidia, Tesla, Meta, Microsoft and Apple.
The movement of money across the Atlantic is accelerating.
The amount invested in US equity funds in the last quarter is more than double the £625 million that was invested during the last three months of 2023.
As broker AJ Bell says, the UK fund industry is “going through dark times”.
Small savers have withdrawn more than £50 billion from the UK in the last two years, which is a surprise.
The various reforms proposed by the Government have gone nowhere.
The Great British Isa is a good idea in principle, but it is unlikely to turn the tide on its own.
Bold measures are needed, such as removing stamp duty on share purchases.
Another smart measure would be to increase the minimum contributions in self-enrollment pensions. These represent 3 percent of qualified income for an employee and 5 percent for the employer, which is nowhere near adequate and should be doubled. That would provide investment capital and give people a better chance at a decent retirement.
Labor is attempting to exploit the loss of credibility the Conservatives suffered in the financial world in the Truss-Kwarteng interlude.
The party has even gone so far as to state in its plan for financial services that it will “unabashedly defend” the sector as “one of the UK’s greatest assets”.
We’ll see, but someone needs to do it.