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Investors piled back into UK equity funds in November following three and a half years of consecutive monthly withdrawals and a sharp sell-off ahead of the Budget.
Funds invested in UK stocks attracted a net £317mn in November from retail investors, according to data provider Calastone.
The inflows mark a long-awaited reversal of net outflows as individuals have pulled out more than £25bn over 41 consecutive months since May 2021.
Investors have shunned UK equities in recent years in favour of global shares — especially fast-growing stocks such as US technology companies.
The shift in sentiment comes after equity funds more broadly suffered record outflows in October as UK-based investors withdrew their money over concerns that the chancellor would increase capital gains tax (CGT).
Chancellor Rachel Reeves said in the Budget at the end of October that CGT would immediately increase from 10 per cent to 18 per cent at the lower rate and from 20 per cent to 24 per cent for higher earners.
Edward Glyn, head of global markets at Calastone, said the prospect of the “biggest tax-raising Budget since 1993 prompted a scramble” to sell equity funds and shield profits from the higher levies.
He said “investors were keen not to be out of the market for long”, noting that they had poured a record £3bn into equity funds in November. He said the flows “were all about minimising tax bills”.
As a result, Glyn said UK equity funds might be experiencing a “hiatus” of outflows rather than a turnaround. “There is no major catalyst on the immediate horizon to prompt a wholesale resurgence of interest in the much-unloved UK stock market,” he added.
However, Rebecca Maclean, a fund manager at Abrdn, said increasing takeover activity was a sign that UK stocks were attractively priced.
“Inflows into UK equity funds indicate that the well-rehearsed valuation argument for UK equities is starting to resonate,” she said.
Companies “have consistently responded to the attractive discounts in UK equities, with ongoing buybacks and takeover bids at significant premiums,” she added.
Ben Yearsley, an investment director at consultancy Fairview Investing, said: “The UK is still cheap. Bids are coming in for companies.”
Dealmaking in the UK accelerated in the last week of November, with the announcement of four takeover offers worth a total of £5.3bn.
Yearsley added that the rise in CGT was “not as bad as expected” and that the lack of an increase in tax on dividends was another incentive for investors looking to take advantage of October’s sell-off. UK equity funds suffered from nearly £1bn of net outflows in October, according to Calastone.
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