The market slump caused by increased fears over the coronavirus prompted a flood of outflows from equity funds last month.
Investors had bought equity funds enthusiastically in the first three weeks of February, shrugging off concerns at the end of January. UK equity funds saw solid inflows of £1.2bn in the first three weeks.
However when the markets began their worst week since the financial crash, investors withdrew their capital from equity funds at their fastest rate, according to Calastone’s Fund Flow Index.
In just five days investors sold a net £1.55bn of equity holdings.
Edward Glyn, Calastone’s head of global markets, said: “After an initial flurry of outflows in January, funds benefited from extreme complacency over the coronavirus outbreak.”
“But the news that the epidemic had taken hold in Italy and then quickly spread across the world caused a dramatic reassessment of its potential impact on the global economy. Investors have voted with their feet.”
The impact of the sell-off was felt most strongly on active equity funds, which shed £1.18bn of capital last month. Passive funds enjoyed £832m of inflows but also suffered outflows of £25m in the last week of February.
Across all fund types in all asset classes, global funds network Calastone found that last month was the worst month since October 2016. It was only the fourth month on record to see overall outflows as investors sought the safety of cash.
In keeping with the global nature of the crisis, global equity funds were hardest hit, suffering their worst month on Calastone’s record. A net £309m left the sector but £881m flowed out in the last five days, reversing inflows earlier in the month.
Funds focused on Asia and Europe were heavily affected but UK funds escape relatively unscathed. Glyn said: “The curiously relaxed approach to funds focused on UK equities reflected the limited number of infections, as well as the extremely low valuations for UK shares.”
“That was enough to keep the sellers at bay for a time, but by the last day of the month there were signs of capitulation even for this sector too.”