Fund outflows eased in February following a difficult start to the year, data from the Investment Association has shown, but investors face growing macro-economic uncertainty going forward.
Investors withdrew £562 million in February, significantly below the £3 billion outflow seen in January.
However, the Investment Association said investors face a “very different landscape” from the end of 2024, when markets rose on the back of the US election victory.
Miranda Seath, director, market insight and fund sectors at the Investment Association, said: “The spectre of rising inflation is back. The shift from rhetoric to reality on Trump’s tariffs is set to drive inflation.
“Central banks, government and investors will keep a close watch on whether any increase in inflation will be transitory or more persistent. Either way, it is likely to affect interest rates and Central Bank policy in the near term. Rate cuts look set to pause and this will affect equity market performance, while bonds are in a good position if investors pivot to risk off.”
The data showed equities continued to dominate outflows in February, with £1.6 billion withdrawn, including £1.4 billion from UK funds alone.
In contrast, tracker funds recorded £1.8 million net retail inflows in February, with £381.7 billion in funds under management at the end of the month. Most of that investment went to North American and Global funds as investors seek low-cost products to access the equity market, the IA said. This is in spite of US market performance faltering through the first quarter of 2025, with the S&P 500 falling 4.6%, marking its worst result since 2022.
Meanwhile, actively managed equity funds saw an outflow of just under £3 billion.
Laith Khalaf, head of investment analysis at AJ Bell, said: “Despite all the talk of a market rotation, money is still gushing out of actively managed funds and finding its way into index trackers.
“It’s still early days, but it doesn’t look like the fall in the S&P 500 has done anything to endear investors to active strategies. 2025 has seen a continuation of the trends we saw in the previous three years, where tens of billions of pounds left the active management industry.
“UK equity funds also saw £1.4 billion of retail outflows in February, taking the running total in 2025 to £3.1 billion. Ironically the FTSE 100 is actually outperforming the S&P 500 so far this year, but the turn in performance hasn’t yet materially fed into the longer-term numbers that many investors will look at when making allocation decisions.”
Khalaf added that there are also structural reasons why investors are turning away from UK equity funds, including the shift towards passive strategies and an unwinding of a historically high weighting to domestic equity funds in many investors’ portfolios.
“The continued outflows from UK equity funds will sharpen focus on what the Government can do to help encourage investment in the UK stock market. One bright idea might be to start by not discouraging it through levying stamp duty on UK stock market purchases, which creates a performance drag on UK equity funds compared to their competitors investing overseas,” he added.
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