UK investors shun British equity funds in favour of surging US valuations

British investors flocked to equity funds last month at the fastest pace in almost three years, but shunned the sluggish British market in favor of rising US valuations.

Inflows of £2.66bn in February were the highest since May 2021, but £633m of UK-focused funds were withdrawn, according to industry group Calastone.

Instead, it was North American equity funds that benefited most, with a record £2.54bn, as investors looked to ride the tech-driven rally in New York. Even European shares gained, with inflows of £363m.

Meanwhile, China’s sluggish economy left Asia-Pacific funds struggling, with outflows of £229m.

Overall, equity funds are enjoying a recovery among UK investors, with £6.31bn accumulated in the last four months after an 18-month “punishment” in which £8.6bn was withdrawn millions.

Inflows into money market funds – which buy safe-haven investments such as government bonds – have slowed markedly since last year as appetite for higher risk returns.

Edward Glyn, head of global markets at Calastone, said investors were “returning to equities feet first” with interest boosted by US stock markets’ rally of more than a fifth since late October.

“However, a rising tide is not lifting all boats,” Glyn added.

“Nothing can persuade UK investors to add capital to their local market, despite very low comparative valuations.”