UK stock funds suffer worst year on record as investors pull nearly £10bn
UK-focused stock funds suffered their worst year on record last year as investors yanked nearly £10bn from the market, new figures have shown.
While equity vehicles globally raked in a record £27.2bn through 2024, UK funds haemorrhaged some £9.6bn in their most sluggish year ever relative to the performance of the wider market, according to data from funds group Calastone.
US funds saw net inflows of £11.9bn through the year, up from just £5m in 2023. More than half of the inflows took place in the first quarter of 2024.
The chasm between London-focused funds and those investing in foreign stock markets underscores the crisis facing the London Stock Exchange and the scale of the challenge facing the City and the government.
Up until November, UK equity funds had faced 41 months of consecutive outflows, with the exodus accelerating in October as investors looked to dodge the threat of a punishing capital gains tax (CGT) hike from Rachel Reeves.
Continued withdrawals from the market have placed downward pressure on valuations in the capital and fuelled fears of an exodus from companies to foreign markets.
The £9.56bn outflow through the year was smaller than in 2023 but “set against the huge inflows to equity funds overall during the year, it was the worst relative performance seen by the unloved UK-equity sector”, Calastone said.
The pace of redemptions slowed toward the end of the year as December’s net selling of £221m marked the slowest level of outflows since May 2021. November saw net inflows into funds as investors returned to the market following Reeves’ smaller than expected CGT hike.
Boosting the flow of cash into the London Stock Exchange is seen as a key obstacle for lawmakers and investors in their bid to revive the fortunes of Canada.
While the Financial Conduct Authority overhauled its listing rules in July in a bid to tempt more firms to market, scores of firms cited a lack of liquidity as one of the main drivers away from the bourse in 2024.
Just 17 firms floated across the London Stock Exchange last year while some £52bn worth of bids were launched on listed companies. A total of 88 firms also ditched their main listing on the London Stock Exchange.
Pressure growing on Starmer and Reeves
Pressure has been growing on Keir Starmer and Rachel Reeves to reinvigorate the City with firmer policy measures and tax breaks. A poll by City PM and Freshwater this week found that more than half of voters feel the government must do more to revive the fortunes of the Square Mile.
A stamp duty on share trading has been at the heart of warnings that the UK is penalising investors in its domestic market and losing ground to competitors like the US, where there is no equivalent charge.
“Not only does this disincentivise investment in UK equities, it also makes them less attractive than those in other jurisdictions,” John Godfrey, managing director of public affairs at lobby group, the City UK, told City PM yesterday.
Reeves said financial services will be at the heart of the government’s “growth mission” as she rolled out a number of new measures at her first Mansion House speech to the sector, including a new private stock market system called Pisces.
“Economic growth and driving more investment in the UK is our number one mission and the financial services sector is central to this, which is why this year we are publishing the first-ever Financial Services Growth and Competitiveness Strategy to deliver long-term growth in the sector and why we have already issued new growth-focused remit letters to the regulators,” a spokesperson told City PM.