Investors invest record £2.6bn into equity funds in April

Following two months of net outflows from equity funds and inflows for cash products while markets plunged on concerns over Covid-19, that trend reversed dramatically in April.

Global equity funds, at £1.1bn, were in demand last month, with UK equities not far behind on £1bn, while money market funds were the only asset class to suffer outflows, according to the funds network's latest Fund Flow Index (FFI).

The Calastone FFI:Equity jumped to 57.1, its highest reading in three years - where a reading of 50 means the value of buy orders equals the value of sell orders.

That said, the firm noted the reason for the high reading was due to an elevated churn rate on funds, with investors switching between offerings, rather than lots of buying and little selling.

Calastone explained each of the four months of 2020 have seen record transaction volumes in equity funds.

The data show investors "scrambled to add to their fund holdings, eager not to miss the best month for markets in 40 years", according to Edward Glyn, head of global markets at Calastone.

"High trading volumes reflect the exceptional uncertainty in global markets - as the pandemic crisis has unfolded, investors have had to constantly assess and reassess the valuation of assets and prospects for the economy," Glyn added.

Meanwhile, appetite for active funds bounced back, with inflows split 50:50 between active and passives. That said, with the FFI:Equity Index showing up at 64.6, here were almost twice as many buys of index funds than sells, the equivalent active index was just 54.6, suggesting much busier two-way trading.

"Active funds tend to be the area in which this ongoing re-evaluation takes place, while passive funds see much steadier inflows over time," Glyn explained.

In addition, Calastone noted the buying activity was largely concentrated in the middle of April, with the final few days of the month seeing greater caution.

"perhaps because investors began to question how solid the foundations of the rally could be given the mounting evidence of severe economic damage around the world, as well as White House sabre-rattling over new tariffs on China," Gyln explained.

"Bear markets are often punctuated by brief moments of euphoria that see share prices inflate rapidly. But just as it is easier to puncture a balloon than knock down a wall, bear market rallies often deflate just as quickly as they occur.

"We don't pretend to know which way share prices are going, but the slowdown in inflows suggests the uptick may at best be on pause for now."

Elsewhere, fixed income funds also managed to stem a tide of outflows, with £461m coming in during April compared to outflows of £3.6bn in March.

Mixed-asset offerings saw inflows, while real estate continued to stagnate due to all funds in the sector being closed to new investments.

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• Calastone
• Fund Flow Index
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