Index tracker inflows dominate in July signalling green shoots of investor optimism

UK savers invested £1.3 billion into funds in July, according to data published by the Investment Association (IA). Whilst cautious optimism persists among investors, in a second consecutive month of inflows of over £1 billion, higher flows to fixed income funds suggest that investors remain risk conscious. 

Key findings for July 2024  

• Index trackers dominated inflows in July, with net retail sales of £3.4 billion, and conversely a £2.1 billion outflow from actively managed funds. Inflows to index trackers were highest among equity funds at £2.3 billion, while fixed income index trackers also recorded inflows of £895 million. 

• Fixed income funds returned to inflow with net retail sales of £444 million. This follows two months of outflow of £318 million and £1.2 billion in May and June respectively. Investors favoured corporate and government debt in July, with £404 million to Corporate Bond funds and £223 million to Government Bond funds. 

• Investors pulled £113 million from equity funds in July, following £1.2 billion of inflow in June. June’s record inflow to European equities (£884 million) gave way to more modest inflows of £117 million in July, while we also saw a second month of outflows from North American equities. UK equity outflows remained high at £919 million for July, however it’s worth noting that the outflow figure was the lowest for 2024 to date. 

• Money market funds were the top selling asset class in July with inflows of £844 million, though this was down from £1.2 billion in June. Short Term Money Market was the top selling IA sector for the third consecutive month, seeing inflows of £806 million building on £1.5 billion in June. 

• Responsible investment funds saw sustained outflows as investors withdrew a net £368 million in July, a slight increase on £343 million in June. 

Impressive index inflows   

A £1.3 billion inflow in July is the second consecutive month of inflows at over £1 billion, with flows dominated by investment into index trackers. At £3.4 billion, this is the second highest monthly inflow to trackers ever recorded and comes after a record inflow in April 2024 (£3.8 billion) when ISA season boosted overall flows.  

Although we saw an outflow from equities overall, inflows to equity index trackers were £2.3 billion as investors opted for low-cost access to equity markets. Global trackers saw high inflows of £851 million. Additionally, although there was an outflow from North American equities overall in July (£179 million) inflows to trackers reached £465 million.   

Similarly, despite outflows from the UK All Companies sector, there was a second month of inflows to UK All Companies trackers (£83 million), with savers dipping a toe back into UK equities through low-cost indexing options. 

Miranda Seath, Director, Market Insight & Fund Sectors at the Investment Association, said: 

“July’s UK general election result has created a measure of political certainty, which is helping investor confidence, and the UK government's commitment to driving economic growth as its core priority, while maintaining fiscal responsibility is a positive signal for markets. The impact of the incremental Bank of England rate cut to 5.0% in August, although not captured in July’s fund flow data, should also help to boost investor confidence as the outlook for inflation has improved and we have reached the peak of the rate cycle. 

To really drive flows back into UK equities however, investors need to see the UK economy deliver growth. At the same time, there is a shifting picture across Europe, the US and Japan: the world’s major economies are not quite out of the woods yet and recent market corrections in the US and Japan show that there is still room for volatility. This may make UK equities relatively more attractive compared with peers. While we haven’t seen a dramatic shift in investor behaviour following the election, we have seen inflows into UK equity trackers – this could be an early sign that investor sentiment is improving.”                                        

APPENDIX 

FUNDS UNDER MANAGEMENT AND NET SALES – July 2024  

BEST SELLING INVESTMENT ASSOCIATION SECTORS                                                                                         

The five best-selling Investment Association sectors for July 2024 were:   

1. Short Term Money Market with net retail sales of £806 million.    

2. Global followed with net retail sales of £625 million.  

3. £ Corporate Bond with net retail sales of £404 million.    

4. Volatility Managed with net retail sales of £387 million.    

5. Government Bond was fifth with net retail sales of £223 million.     
        

The worst-selling Investment Association sector in July 2024 was UK All Companies, which experienced outflows of £655 million.   

NET RETAIL SALES BY ASSET CLASS  

Money Market saw £844 million in inflows. 

Fixed Income saw £444 million in inflows.   

Other saw £203 million in inflows.   

Property saw £50 million in outflows.   

Mixed Asset saw £72 million in outflows. 

Equity funds saw £113 million in outflows. 

NET RETAIL SALES OF EQUITY FUNDS BY REGION*   

Global funds saw net retail inflows of £632 million. 

Japan funds experienced inflows of £126 million. 

Europe funds experienced inflows of £117 million. 

Asia funds experienced outflows of £40 million.

North America experienced outflows of £179 million.  

UK funds saw net retail outflows of £919 million. 

TRACKER FUNDS  

Tracker funds saw net retail inflows of £3.4 billion in July 2024. Tracker funds under management stood at £370 billion at the end of July. Their overall share of industry funds under management was 25%.  

RESPONSIBLE INVESTMENT FUNDS  

Responsible investment funds saw a net retail outflow of £368 million in July 2024. Responsible investment funds under management stood at £103 billion at the end of July. Their overall share of industry funds under management was 7%.  

                                                                                ENDS