Small investors are yanking money out of the UK stock market at a record pace, industry figures are poised to reveal.
Trade body the Investment Association is finalising its figures for 2023, which seem sure to be the worst ever for outflows from UK funds.
Around £25 billion has been taken out of the UK stock market in the last two years alone, which partly explains why London shares have much more lowly valuations than rivals in the US and elsewhere.
This comes as the London stock market struggles to attract floats of big companies, which are heading to New York instead.
Some large companies based on the London market, notably Paddy Power owner Flutter, are planning to move its primary stock listing to the US.
Laith Khalaf, head of investment analysis at AJ Bell, said: “UK equity funds have been haemorrhaging money since 2016, and this trend only seems to be accelerating in recent years. 2023 looks like it is going to be the worst year on record for UK equity fund flows.”
The figures for December are still being finalised by the IA, which acknowledges the scale of the problem. Its members manage funds of almost £9 trillion.
City analysts partly blame the cost of living crisis, with high prices for food, energy and transport leaving little to invest in the stock market.
Khalaf adds: “If domestic fund investors won’t invest in UK funds, it’s little wonder the UK stock market is struggling, and so many UK companies are seeking to list overseas. Over eight years of pain, more than £46 billion has been withdrawn from UK Equity funds by retail investors, with £24.7 billion whipped out in the last two years alone.”
Alan Miller of SCM Direct, said: “These record outflows from UK equity funds are part but not all the reason why UK equities continue to underperform almost every major market bar China, and the gulf between UK and overseas valuations widens daily despite absurd claims by the LSE chief executive otherwise.”
David Schwimmer, the boss of the London Stock Exchange Group, has claimed London is still the leading European market.
Miller adds: “It is no wonder that more and more companies are deciding to switch their listing or IPO overseas. The Government needs an urgent smell the coffee moment – the answer is not reducing investor protections but giving tax incentives to invest in UK equities – particularly for institutional investors.”
The UK government’s own pension scheme has less than 2% of its assets in UK stocks, lower even than the average pension fund.
The funds say that are obliged to match liabilities to assets so tightly that the regulations force them to hold bonds rather than riskier shares that might perform better in the longer run.
The lack of appetite from retail investors for UK shares has seen the industry back away from launching new funds focussed on the home market.
Star fund managers such as Terry Smith and Nick Train have lately underperformed their benchmarks, persuading even those investors who like their funds to move instead to index trackers that are cheaper and simply ape market moves.
UK equity funds accounted for 51% of all equity fund assets in the Investment Association universe in 2009, alongside other regional and global equity funds. That has now shrunk to 27%.
