UK funds ‘left in the dust’ as British investors pile into US shares

British investors invested a record £7 billion in equity funds in the first quarter of 2024, but shunned domestically focused instruments for opportunities in North America, data shows.

Almost £7 billion was invested in North American equity funds in the past nine years, compared to £6.4 billion in the past nine years combined, according to Calastone’s latest Fund Flow Index.

Conversely, UK equity funds saw outflows rise to the highest level since February 2023 last month, meaning there have been 34 consecutive months of net selling.

North American funds across all asset classes absorbed a record £5.7 billion of UK investor capital in the first quarter, more than three times the previous best quarter, the report shows.

Outflows from UK equity funds amounted to £823m in March, which was the worst month since February 2023, when outflows were £962m.

Outflows from UK equity funds in the first quarter of 2024 were £2.1 billion, representing the fourth worst quarter for UK equity funds on Calastone’s record. Income funds, which are heavily weighted in Britain, also saw continued outflows.

In the latest spring budget, Jeremy Hunt announced plans to launch the British Isa.

The UK Isa will be a new type of Isa that allows savers to invest £5,000 a year in UK assets tax-free.

The UK Isa would allow people to invest a further £5,000 on top of the existing £20,000 annual allowance, but only in UK assets.

Edward Glyn, head of global markets at Calastone, said: ‘Global equity markets have risen sharply since the end of October.

‘Japan, the US and Europe have taken the lead, all by more than a quarter, leaving Britain in the dust, with the UK’s top 100 gaining just 8.6 per cent over the same period.

‘UK shares are certainly cheap, but investors are concerned about where growth will come from to keep profits rising.

‘Add to that a brutally gloomy story about the prospects for the London stock market and it’s hard to convince anyone to hold UK funds.

“Meanwhile, the US earnings recession is over – profits are rising again and that appears to be the main catalyst driving capital inflows and higher stock prices.”

After North American equity funds, global equity funds were the most popular choice for UK investors in both March and the first quarter, with inflows of £1.22 billion and £3.3 billion respectively.

Emerging market equity funds ranked third in March, with £362m of inflows from UK investors. It wasn’t a record quarter for emerging markets, but the £700 million inflows in the first quarter were almost three times the historical quarterly average, Calastone said.