Investors raced out of equity funds and into money market and fixed-income assets in October as concerns heighten over a possible stock market bubble.
Equity funds saw their largest outflows on record last month with net selling hitting £3.6bn, a third of which was from UK-focused funds, according to global funds network Calastone, which tracks buy and sell orders in individual funds from UK-based investors.
October marked the fourth consecutive month of outflows from equity funds, the longest period of selling since the Brexit referendum.
Institutions such as the IMF and Bank of England, as well JPMorgan CEO Jamie Dimon, have been warning that many assets are increasingly being overvalued, risking sharp corrections which could lead to market disruption if the bubble bursts.
“Two forces are driving investor behaviour. One is simply nerves about global equity prices, especially in the US. Outflows from global, US and tech funds are all part of that story,” said Edward Glyn, head of global markets at Calastone.
Although every equity fund saw net outflows, with North American funds losing £649mn, redemptions were concentrated in UK-focused funds which saw £1.2bn removed in the month. Money flew into so-called safe haven assets, with a record £955mn invested into money market funds and £589mn into fixed income.
This was impacted by the second reason for outflows highlighted by Glyn — worries about the measures that will be introduced by chancellor Rachel Reeves’ Budget at the end of the month, where she will be forced to raise taxes to fill an estimated £30bn gap in public finances.
“For some, it’s a simple matter of crystallising capital gains in case rates go up. This drove a huge uptick in selling this time last year and it’s clearly round two in 2026 . . . for many others it’s about pensions,” said Glyn.
Worse than that is the overactive rumour mill. “Speculation on policy has made this drastic step the only rational choice for many, even if it may ultimately harm their longer-term financial goals,” he added.
The outflows from UK funds will not be welcomed by the government, which has been attempting to jump-start the anaemic UK market for a number of years, pushing pension funds to increase investment in UK companies and overhauling the rules for London-listed companies.
The UK has seen a number of delistings and takeovers in the past decade, with institutional and retail investors shunning holdings in the London market in favour of US equities, which have seen values soar.
These measures, however, have not translated into greater investment: capital raising on the London Stock Exchange had its worst start to the year in three decades in the first half of this year. UK funds have not seen annual net inflows from UK investors since 2015, according to Calastone’s data, with £9.6bn withdrawn last year and £12bn a year before.
Some hope that a wobble in the US tech market could be an opportunity for European markets, which are not as dominated by tech stocks.
