Flows to UK domiciled funds in a global context

UK domiciled funds were in outflow in 2023 – in contrast with the recovery in sales to funds domiciled in the US, Europe, and Ireland. The FUM in US domiciled funds dwarfs the UK market at over $32 trillion so to analyse sales data on a like for like basis, Chart nine shows sales as a proportion of FUM for the US, Ireland and Luxembourg as key fund domiciles and compares the data with the UK and the rest of Europe. This data represents institutional and retail sales data.

While all domiciles saw outflows in 2022, the UK stands out as having remained in consistent outflow through 2023, with outflows averaging 0.4% of industry size per quarter. Within Europe, Ireland has seen strong inflows boosted by strong money market fund and ETF activity. Inflows through 2023 averaged 1.1% per quarter for Ireland. While active ETFs do exist, ETFs are largely index tracking, and strong ETF sales likely reflect a preference for index tracking funds. The data for this chart includes institutional flows, and ETFs typically see higher use by institutions than retail clients.

Similarly, the bulk of inflows to US funds through 2023 was to money market funds. The collapse of a number of regional banks in the US may have steered some US investors towards money market funds. Inflows to US domiciled funds averaged 1.2% of FUM per quarter in 2023, against an average quarterly 0.1% outflow in 2022.

The below chart is presented on a domicile basis, and as a domicile the UK has limited numbers of smaller money market funds, and no ETFs at all. As a fund domicile, the UK was therefore poorly positioned to respond to shifting market patterns in 2023. Among the mainstream asset classes European investors showed similar preferences to UK investors, favouring bonds and selling out of equity funds.