2023 and Q1 2024 Key Numbers

Key Numbers

The UK investment fund market faced a challenging year in 2023, with net retail outflows of £24.3 billion, mainly from equity funds. This marks only the second year of net outflows, albeit outflows were slightly lower than 2022’s £26.9 billion.
The first quarter of 2024 saw net retail outflows of £3.3 billion, an improvement on the £8.6 billion outflow in the final quarter of 2023, as equity outflows eased amid hopes of loosening monetary policy.
In a higher interest rate environment, funds are increasingly having to compete with the return investors can make on cash savings. Investors placed £47.2 billion into cash ISAs in 2023, a record annual total and a greater inflow than the previous 8 years combined.
Investors showed an ongoing preference for index trackers over active funds, as index trackers saw continued inflows of £13.8 billion through 2023, against an outflow of £38.1 billion from active funds.

Through 2023, investors preferred safer assets such as government bonds and money market funds. However, in Q1 2024 investors have returned to other assets, notably corporate bonds and North American equities. A decline in yields on government bonds at the end of 2023 and a strong rally in US equities has helped drive this shift in allocation.
Inflows to Indian equity funds were among the few bright spots in 2023, attracting sales due to their strong performance and growth prospects. Chinese equities, meanwhile, have seen consistent outflows over the past 15 months amid concerns over weaker growth and ongoing geopolitical tensions.
Responsible investment funds have seen consistent outflows over the past three quarters. Investors pulled a net £3.3 billion over this period as concerns over performance persisted following the severe headwinds felt in 2022 when oil and gas stock prices rose sharply.

In Q1 2024, net retail sales are -£3.3 billion, which is an improvement on the £8.6 billion outflow seen in Q4 2023 but demonstrates the challenging conditions that are still facing the funds industry.
Sales to funds typically receive a boost during ISA season across March and the first 5 days in April. March’s inflow was a weak £446 million but we could see this rise coming through in the April sales data.
Equity outflows eased substantially in Q1 down to £1.6 billion, from £5.9 billion in Q4 2023, with inflows to North American and Global equities. Fixed income funds meanwhile returned to inflow, of £137 million, the first quarterly inflow since Q2 2023. Mixed asset funds remained in outflow with £1.5 billion withdrawn, a marginal improvement on the £2.3 billion withdrawn in Q4 2023.

The outlook for the rest of 2024 remains uncertain, as expectations of interest rate cuts remain unclear amidst Central Bank concerns over cutting rates too early. Headline UK annual CPI has now fallen to 2.3%, which may prompt the Bank of England to make an incremental rate cut in the summer but the Bank remains cautious about service sector inflation.
If the base rate remains close to 5% for longer, it will make debt repayment for companies and individuals harder. Attractive cash savings rates will continue to draw some people away from investing into cash.
A high base rate also affects the outlook for markets and for equity growth strategies in particular.