Emerging markets buck investor woes as equity funds shunned
Investors may have cut their exposure to equities in favour of bonds and fixed income holdings, but emerging markets defied the trend.
UK investors withdrew £858m from equity funds in September, marking the fifteenth month of outflows in the last sixteen, according to the latest fund flow index from Calastone. Since the start of the year, equities have suffered outflows of £5.4bn.
But amid the wider outflows, emerging market equities stood out, attracting £133m, as investors sought opportunities away from concentrated developed markets.
“Inflows to emerging markets suggest a search for diversification, they offer exposure to economies and valuation that look very different from the heavily owned US market.” said Edward Glyn, head of global markets at Calastone.
Global equity funds also attracted £410m.
UK’s spring bounce falls flat
UK equity funds remained a firm sell, as investors withdrew £708m. This marked the sixty-third month of outflows in the last 65, shedding a total £47.7bn.
It also pointed to a firm end of the UK’s spring uptick. In May, London reported its first net inflows since November 2024, which the firm dubbed a “surprise reversal” to its recent run of bad fortune.
The gloom in the domestic market also seeped across the Atlantic, as North American equity funds lost £124m, the largest outflows since November 2025.
Asian equity funds lost £371m, marking the second-worst month on record, while European, Japanese and Chinese sector-focused funds also all reported net selling.
Scrambling for bonds
Glyn said: “Investors are nervous and this is making them very picky. Equities overall remain firmly out of favour… despite relatively resilient market performance.
“High share prices, surging bond yields and significant geopolitical and inflation concerns mean investors have plenty of reasons to question how much equity risk they want to carry.”
These fears caused investors to turn to fixed income as bond funds reported inflows of £655m.
High-yield funds were particularly lucrative, pulling in £421m, despite the turbulent period bond markets are experiencing.
September saw the global bond market experience severe upheaval off the back of rising energy prices, inflation fears and weak government finances.
While higher yields caused existing holders to report losses, increased the income available to investors buying at current prices, “making bonds more attractive to new money”.