British investors are pouring cash into US stocks, data shows

British investors continued to withdraw large sums of money tied up in UK share funds and ‘responsible investments’ last month, new data shows.

The ‘worst selling’ sector in March was UK All Companies, which saw outflows of £887 million, according to the Investment Association (IA).

UK funds saw a net retail outflow of £1.3 billion last month, according to findings published on Thursday.

Meanwhile, flows into US shares rose to £1.5 billion in the first quarter, more than double the level at the same point a year ago, the figures showed.

The IA said: ‘This has been driven by the dominance of the Magnificent Seven and advisers and asset managers choosing US equities when reinvesting in equities.’

The popularity of responsible investment funds appeared to be waning, with net retail outflows of £329 million in March.

Amid significant outflows, responsible investment funds under management stood at £106 billion at the end of March, meaning their total share of sector funds under management was 7.2 per cent, the IA said.

Equity funds saw modest inflows in March, with US equity funds proving popular with UK retail investors.

UK investors returning to fund markets in March resulted in inflows of £446m.

Miranda Seath, director at the IA, said: ‘Inflationary pressures eased towards the end of 2023, and alongside expectations of rate cuts, this resulted in a more optimistic outlook among investors.

‘While inflation continues to fall, expectations for rate cuts in April have been scaled back quite dramatically, following recent data suggesting it will take longer for inflation to fall back to target levels.

“It remains to be seen how investors will respond to this, which coincides with ongoing geopolitical tensions.”

Investing Matters: A chart of IA showing monthly net retail sales by asset class

The data shows that global funds were the best-selling sector in March, with inflows totaling £842 million.

Fixed income funds also saw significant inflows this month, with £809 million invested.

But the IA added: “However, data also shows that fixed income allocations are starting to stagnate as investors anticipate a rate cut in 2024 and other asset classes begin to regain both popularity and strength.”

Tracker funds maintained steady inflows of £2.9 billion, up £800 million from February, where the amount was £2.1 billion.

Seath added: ‘Markets are not yet reeling from escalating geopolitical tensions and there are increasing signs of investor confidence, boosted by the sales boom, as investors look to top up their Isa entitlements before the end of the tax year.

Declining: A chart from the IA shows monthly net retail sales of responsible investment funds

“As equity performance improves, especially in the US, we have seen assets under management rise: they are up 3 percent in the first quarter and 11 percent from the recent low at the end of October.

‘North American equity funds performed particularly strongly in the first quarter of the year, with strong inflows of £1.5 billion on the back of stronger growth rates in the US.

‘The dominance of the Magnificent Seven stocks, as well as the Federal Reserve’s monetary policy decisions, are helping to curb inflation, which has fallen faster in the US than in the UK and Europe.’

Laith Khalaf, head of investment analysis at AJ Bell, said: ‘March is one of the two big months of the Isa season, and it was relatively good for retail money flows, but it was by no means a whirlwind.

‘Retail investors have put a net £446m into funds, but that follows withdrawals of £3.8bn in January and February.

‘Fund managers will be hoping that this is the start of some green shoots of recovery for the sector, but it could also just be a blip caused by increased activity towards the end of the fiscal year and a revival in the global stock market.

“Indeed, it is notable that US equity funds did much of the heavy lifting in the first quarter, as investors brushed aside concerns about concentration risk and the relatively high valuations of the Magnificent Seven.”