Introduction
2023 saw a second year of challenging sales conditions for investment funds in the UK, though conditions have moderated slightly in the first quarter of 2024. In this report, we examine key recent behaviours in the funds market putting the pattern of sales in 2023 and Q1 2024 in the context of investor behaviour over the last three years as they experienced soaring inflation, the impact of the Russia/Ukraine war on energy prices and a cost of living crisis. To combat these conditions, central banks have chosen to raise the base rate and from 2022, markets have been operating in a very different climate from the fourteen years following the financial crisis.
In this report, we consider the impact of the rise in interest rates and the consequent increased appeal of cash savings on fund flows. We also look at the longer term trends of the continued shift of assets from active to index tracking funds and outflows from UK equities. There are more recent developments in investor behaviour too: recently we have seen sustained outflows from responsible investment funds. At an asset class level, investors have returned to North American equities and shifted investor attention from Chinese to Indian equities. We also examine patterns in fixed income fund sales, with a rotation from government debt in 2023 to corporate debt in Q1 2024.
Whilst 2022 was a very difficult year for fund flows globally, in 2023 we have seen some jurisdictions fare better than the UK. We examine the potential drivers for this in the report and then look ahead to how fund flows might behave in H2 2024 as speculation intensifies over when and how far Central Banks may cut rates.
