UK investors put £50bn into global equity at expense of regional funds

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British retail investors have added £50bn into global equity funds since 2015, while pulling billions from funds that only invest in the UK, compounding the flight from the London stock market by institutional money.

The data from funds network Calastone reflects investors’ frustration with the relatively poor performance of UK stocks and their willingness to trust global active managers to pivot to areas of higher growth, such as US large-cap tech stocks.

Calastone’s figures are not comprehensive but are widely seen as offering a useful snapshot of investment fund flows.

“The world economy is in even greater flux than ever — some countries are struggling to get a grip on inflation, others are burdened by soaring government debt, whilst others still, like China, are menaced by deflation,” said Calastone’s head of global markets, Edward Glyn.

“Global funds may tilt to one favoured region or another but, broadly speaking, they take away the pain for a retail investor of backing the wrong horse,” he added.

This trend has rapidly accelerated since mid-2021 at the expense of regional-mandated funds. Global funds have seen inflows of £19bn, while investors have pulled a net £21bn from regional funds, including £16bn from UK-focused funds.

Since 2015, only £900mn has been added to regional funds such as those focused on Asia-Pacific, Europe and the UK. Europe-focused funds saw outflows of £2.8bn in the same period.

Industry figures also pointed out that many global funds, while offering greater diversification, are heavily weighted towards the US, which has grown at roughly double the rate of the UK economy since 2008, led in part by technology companies such as Alphabet and Microsoft.

“Global funds are biased towards the US which has had a strong run so in part the penchant for global funds is momentum driven,” said Emma Wall, head of investment analysis at Hargreaves Lansdown, an investment platform.

“As well as performance factors, retail investors like the diversification that a global fund offers over a single region.” Three of Hargreaves Lansdown’s top 10 most-bought funds in August are global mandates, including the Fidelity Global Technology fund.

Separate figures from the Investment Association, a trade body for the asset management sector, show that global equity funds had inflows from retail investors of more than £750mn this year, while UK equity funds had sales of some £6bn.

In total according to the IA, global retail funds in the UK have £169bn under management, compared with more than the £140bn held by UK funds.

“We’ve wanted global fund managers for a long time as it makes no sense to restrict yourself to a region any more,” said Julien Sevaux, founder of wealth manager Eighteen48.

“If you’re looking at, say, European pharmaceutical companies why would you not allow yourself to pick an American one too? A lot of these companies have become global businesses. Where you are listed is no longer important; it’s where you’re doing business.”

Managers nonetheless warned that investors who allocated money to global funds risked correlation with investments in US or tech stocks, given their significant weighting in the world indices.

“If you are only buying one equity fund, it is a good idea to maximise your global exposure. Investors should be mindful that if they already own a US equity fund there is likely to be up to 60 per cent overlap between holdings and therefore an emerging market, European or UK fund may be a better diversifier,” said Wall from Hargreaves Lansdown.