Spooked investors lead to first-ever year of net fund withdrawals 

A record amount of money was taken out of investment funds last year as rising interest rates and inflation spooked markets, leading to one of the worst-ever years for returns – by Christian Leeming

 
Crashing stock and bond markets sparked the first-ever year of fund withdrawals in 2022; a classic 60/40 stocks to bonds portfolio lost 17% in dollar terms, according to fund manager BlackRock, with global equities down 18% and global fixed income down 15.7%. 

Returns in sterling terms were better owing to a weak pound, with Vanguard LifeStrategy 60% Equity fund losing 9%. Data provider, Morningstar, found that it was the worst year for the 60/40 portfolio since 2008. 

Data from the Investment Association (IA) showed that £25.7 billion was withdrawn; this was the first-ever annual outflow of money, with the next worse year coming in 2008 when only £4.2bn was added to funds.  

Poor returns from stocks and bonds were caused by steep and unexpected interest rate rises imposed to fight inflation caused by a reopening of the global economy following the pandemic. Expensive stocks, such as the big tech firms that dominate global and US indices, were hit the hardest, as were long-dated.   

UK shares fared better, with the FTSE All-Share ending the year flat, including dividends. Sustainable funds too bucked the trend, with £5.4 bn inflows throughout the year.  

Tracker funds also proved popular, with inflows of £11bn as investors dropped expensive, but often underperforming, active managers for cheap alternatives; AUM in trackers was £284bn at the end of December, representing a 20.7% share of industry funds under management. 

UK investors withdrew £282m from funds in December 2022, the 10th month of net retail outflows in 2022. Money market funds saw outflows of £721m, and mixed-asset funds £116m. 

North America was the best-selling IA sector for the second month in a row, with inflows of £358m. 

Announcing these results, Chris Cummings, chief executive of the IA, said: UK retail investors faced a challenging year in 2022, as inflation soared following the Russian invasion of Ukraine, which caused energy and supply shocks. Investors grappled with a cost-of-living crisis and returns from stocks and bonds falling in tandem. 

‘Funds saw outflows in 10 months out of 12 last year, with £25.7 billion withdrawn through the year, a record annual outflow. As the December data shows, the significant outflows we saw earlier in the year are easing. With markets rebounding at the start of 2023 and the outlook for bond investing improving, there are glimmers of hope that investor confidence will increase in the first quarter of 2023’.