Responsible investments experienced a record outflow of £448m during August, new data has shown, following a period of weaker sales.

According to the latest figures published by the Investment Association, responsible investment funds under management stood at £96bn at the end of August. Their overall share of industry funds under management was 6.9%.

Across all funds, the Investment Association’s figures revealed that UK savers put £354m into funds in August, a figure largely driven by inflows into tracker funds.

Head of investment analysis at AJ Bell, Laith Khalaf, commented that the “ESG party is running out of steam”, with responsible investment flows drying up.

“We’ve now had three months of continuous outflows, and in August a record amount was withdrawn from responsible investment funds,” Khalaf commented. “Part of the explanation for the ESG slowdown is likely to be the cyclical nature of fund flows.

“Three years ago, ESG was everywhere, fund groups were launching new products and marketing them like crazy, and the saturation point was probably found pretty quickly. All that money flowing in helped ESG funds perform well, attracting more cash from those who follow fund performance tables. After that initial goldrush, ESG funds are now part of the furniture and having to fight hard for inflows like all other sectors.”

The Investment Association’s figures also showed that inflows into tracker funds doubled to £1.6bn during the month, up from £860m in July. Tracker funds under management stood at £300bn at the end of August, while their overall share of industry funds under management was 21.6%.

For fixed income, however, funds saw outflows of £356m, the first outflows since October last year. The association confirmed that this included outflows from all Sterling fixed income sectors.

Chief executive of the Investment Association, Chris Cummings, said: “August, typically a quieter month, saw muted net inflows after a strong July. Consumer confidence about the economy remains unsteady with the impact being felt of the ongoing cost of living crisis.

“While wage growth overtook inflation in June 2023 – the first time since November 2021 – there is still a gap to be bridged between disposable income and investment activity.”

Khalaf added: “Fixed income funds are also on the back foot, and rising bond yields in recent weeks suggest this sell off has accelerated. Bond markets are coming to terms with the possibility that interest rates might have to stay higher for longer, and that central banks aren’t simply going to keep delivering the monetary stimulus fix they became addicted to in the era of loose monetary policy.

“This also has implications for the stock market, which has been relatively sanguine about the risk-free rate of return rising by 4% in three years. Equity fund sales look relatively steady in August, but a secondary effect of rising bond yields could be tremors in the stock market too.”

Share Story: