Investors pulled $1 billion from UK equity funds in January - Calastone

A trader from BGC Partners, a global brokerage company in London's Canary Wharf financial centre waits for European stock markets to open

By Elizabeth Howcroft

LONDON (Reuters) - UK-focused equity funds registered 868 million pounds ($1.04 billion) of outflows in January, in sharp contrast to global funds, which attracted investment as markets rebounded, funds network Calastone said on Tuesday.

The latest data means UK equity funds have seen 20 consecutive months of outflows, with January's losses the third-largest on record.

London's FTSE 100 hit a record high on Friday, having gained about 4.3% in January.

"The combination of January’s near-record high for the UK market, with near-record outflows smacks of opportunistic selling against a backdrop of chronic pessimism, exploiting a moment of higher prices to head for the exits," said Edward Glyn, head of global markets at Calastone.

Calastone said for every 1 pound of sell orders of UK-focused funds, it saw just 59 pence of buy orders last month.

"No other fund sector saw a mismatch this large, and not a single trading day saw net buying," the company said.

Fixed-income funds attracted a net inflow of 1.23 billion pounds in January - the second largest monthly bonds inflow on record - as investors sought to lock in higher-yielding debt before the Bank of England stops raising rates.

The BoE has raised rates 10 times since December 2021 to try to tame high inflation.

"There is some rotation going on as UK investors switch to global funds that are more likely to benefit from a return to bull-market conditions – we have seen selling of UK funds ramp up at the same pace as buying of global ones," Glyn said.

"This confidence may be premature, however, as although interest rates globally are still on the up and corporate earnings are coming under pressure - this is not yet fully reflected in global markets."

UK property funds saw a sixth-consecutive month of outflows in January, with investors selling net 48.3 million pounds of holdings, as the property sector came under pressure from rising rates and a weak economic outlook.

Several open-ended UK property funds (managing around $18 billion worth of assets) had restrictions on withdrawals in place as of early January, after pension schemes sold property assets to raise cash during a liquidity crisis in September.

Returns on British real estate fell 11.9% in the fourth quarter of 2022, the biggest quarterly drop since 2008, data from MSCI's quarterly UK property index showed on Monday.

($1 = 0.8306 pounds)

(Reporting by Elizabeth Howcroft; Editing by Sharon Singleton)