Investors in the UK have put £356m into funds in May 2023, the latest data from the Investment Association (IA) has found.

However, the month was described as one of “caution”, with a potential global recession on the horizon and outflows in the UK continuing. The first outflow also took place in North America for the first time in seven months.

Other findings from the report showed that fixed income funds saw inflows of £632m, while Government bonds was the top selling sector with net retail sales of £658m.

Furthermore, global funds were the top selling equity region, with net retail inflows of £261m.
Tracker funds and money market saw inflows of £1bn and £500m respectively, with UK Gilts hitting net retail sales of £344m.

Chief executive of IA, Chris Cummings said: “With ISA season behind us, modest inflows continued in May with £356m invested into funds overall. Caution was the theme of the month, with Government Bonds seeing strong inflows. This is not surprising given concern about potential global recession and ongoing conflict in Ukraine.

“Investors continued to diversify their equity portfolios, with continued inflows into global equity funds. However, North America had its first outflow in seven months, possibly reflecting uncertainty ahead of resolution on the debt ceiling. The UK remains unloved amidst persistent outflows.”

Head of investment analysis and research at Hargreaves Lansdown, Emma Wall, added: “Despite swirling macroeconomic concerns investors continued their cautious optimism in May, buying into the market – good news after such a torrid 2022 for flows. What they are buying is telling – while global funds attracted some inflows, it was fixed income that proved most popular, with government bond funds the top selling sector. This is hardly surprising given the central banker action over the past year. After years of only being offered attractive yields on equities and alternatives, high inflation has forced the Fed, Bank of England, ECB and other central banks across the globe to hike rates, offering investors the chance of a decent rate of interest on cash, and in turn government bonds.

“While equity markets continue to rally, it is notable that investors are hedging their bets, pursuing two distinct investment strategies – buying US funds and growth-biased equities alongside money market funds, gold and gilts. Cash savings continue to attract significant flows too.

“These investor patterns reveal the confusion of navigating a seemingly disconnected market and macro. The most bought funds for June on HL saw a boost in optimism however – with tech, US, global and growth names interrupted only by renewable energy and infrastructure, despite sticky inflation and worrying growth indicators. The outlook? Expect more volatility from here, and remember investing is for the long term.”

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