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February 20, 2023

Everything Flows: 2022 UK Fund Market Review

by Dewi John.

2022 Sees the Highest UK Fund Redemptions Ever Recorded

Executive Summary

 

Total UK net fund flows for 2022 were in the red to the tune of £41.1bn. Excluding money market funds, which saw strong inflows in Q4, this rises to £53.9bn.

There were clearly a number of determinants: war in Ukraine from February, spiralling rates and inflation throughout the year, and from late September, the effects of a mini-budget that saw institutional funds redeem cash from risk assets and stow it instead in money market funds.

  • Money market funds saw the only inflows, at £12.7bn. During the first three quarters, this asset class was in redemption mode, but Q4 saw the tables turn with a vengeance as £53.4bn went into these funds.
  • Nonmoney market funds suffered outflows of £53.9bn.
  • Equity funds saw the largest outflows, of £34.9bn. UK equities once more bore the brunt of this, with Equity UK, UK Income, and Small & Mid-cap seeing £23.3bn of outflows.
  • Alternatives saw outflows of £12bn, with asset-backed security funds being particular victims of these redemptions.
  • Despite heavy losses, Bond funds experienced relatively small outflows of £2.6bn.
  • Mixed-assets funds saw outflows of £1.2bn, although GBP Aggressive funds in this asset class continue to attract cash.
  • Sustainable funds attracted £27.6bn. Of these, equities got the largest share (£21.2bn).

 

Asset Class Overview

Chart 1: Asset Class Flows by Year, 2012-2022 (£bn)

Source: Refinitiv Lipper

 

Some £2.01trn was held in UK mutual funds and ETFs at the end of 2022. That’s down from £2.27trn the previous year. This is the first fall in total net assets since 2018, and of greater magnitude.

The largest portion of this (46.1%) is invested in equity funds: £926bn, down from £1.08trn the previous year. Mixed-assets funds follow, with total net assets of £400bn (19.9%), followed by bonds (£322bn).

Percentage-wise, real estate net assets saw the greatest year-on-year decline, down to 79.8% of their 2021 values. The only asset class to see an absolute increase was money market funds, posting a 5.1% increase on the previous year, and now making up 15.1% of total net assets.

 

Chart 2: Asset Class Flows by Year, 2003-2022 (£bn)

Source: Refinitiv Lipper

 

Some of the net asset declines noted above are because of market declines, with both equities, bonds, alternatives, real estate, and mixed-assets down over the year. However, investors have also pulled money from funds, with the only money market funds being in the black over the year, attracting £12.7bn. Coincidently, that’s the same amount of money that has been pulled from alternatives funds over the course of the year. Much of this is accounted for by one particular strategy, likely deemed vulnerable in this environment, which we’ll deal with under Chart 6

Non-money market funds shed £53.9bn over the year, with the largest quanta (£34.9bn) being redeemed from equity funds.

In short, 2022 saw the highest level of UK fund redemptions ever recorded.

 

Download the full report with the link to the right.

 

Refinitiv Lipper delivers data on more than 360,000 collective investments in 113 countries. Find out more.

The views expressed are the views of the author and not necessarily those of Refinitiv. This material is provided as market commentary and for educational purposes only and does not constitute investment research or advice. Refinitiv cannot be held responsible for any direct or incidental loss resulting from applying any of the information provided in this publication or from any other source mentioned. Please consult with a qualified professional for financial advice.

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