Money market funds surge in popularity as investors grapple market volatility
Money market funds roared back to popularity last month, as investors continued to shun equities amid ongoing market uncertainty.
UK investors allocated capital to money market funds in favour of stocks in a bid to ride out the ongoing economic and geopolitical tensions rocking financial markets.
The funds attracted £417m of inflows in September, marking the strongest performance since November 2025, according to the latest data from Calastone.
The vehicles are designed as a low-risk investment option aimed at preserving capital rather than targeting aggressive growth through holding short-term debt issued by government, banks and companies.
The short timeframe offers investors less volatility and small yield opportunities that high-street banks fail to match.
Turning a blind eye
Analysts noted rigorous interest in money market funds despite major developed and emerging markets delivering robust returns among volatility and growing fears over AI stock valuations.
The FTSE 100 is up 5.1 per cent since January, while the Nasdaq has climbed 13.5 per cent. Key emerging markets have also generated an uptick in returns, including the Kospi which has rocketed 57.8 per cent.
“While stock markets have delivered strong returns over the past year, some investors are choosing to keep a portion of their portfolio in cash-like investments that seek to deliver a yield while limiting volatility,” said Kyle Caldwell, fund and investment editor at Interactive Investor.
“Others may be using money market funds as a temporary home for cash before deploying it into equities over time.”
Budget fears
The uptick of capital in money market funds also comes as chancellor John Healey’s maiden Autumn Budget edges closer.
“This month’s Budget is also likely to be a factor in driving rising outflows from equities. Speculation about higher taxes means some investors will be taking profits now.” said Edward Glyn, head of global markets at Calastone.
Glyn added that Budget worries coupled with volatility causing weaker equity exposure has made money market funds into a “safe haven”, allowing returns with minimal risk.
“All this shows that investors still want returns, but they are demanding more compensation for taking risk.” he said.