ESG equity funds suffer worst month ever for outflows

ESG equity funds lost £304mn of capital in May, the worst month on record, Calastone found.

The global fund network’s latest Fund Flow Index said this represented only the second month during which investors had been net sellers in this sector in over five years.

This is in contrast to the start of the year which saw an inflow of £744mn in Q1 and an £583mn inflow in April alone.

ESG equity funds were not alone in experiencing outflows as Calastone reported that the other asset classes of mixed asset funds and property funds suffered outflows of £182mn and £46mn respectively.

This was representative of a broader trend as the index reported that equity funds experienced a “sharp reversal of fortune” in May.

After enjoying strong inflows in both March and April, investors withdrew a net £302mn from equity funds in May, the worst figure for equity funds since the "mini" Budget.

Whilst UK-focused equity funds were hardest hit, with outflows of £583mn, other regions also suffered outflows in May with the selling of European equity funds intensifying and sentiment on Asia-Pacific turning negative.

It was also reported that North American funds experienced a reversal of the "flurry" of inflows it had experienced in March and April.

Calastone’s index attributed these outflows to both a sharp drop in buying activity as well as a small increase in selling.

While many regions experienced outflows, the index reported that only global funds and emerging market funds saw inflows, totaling £849mn and £212mn respectively.

Calastone head of global markets, Edward Glyn, saidd: “May’s bond market ructions had surprisingly little impact on share prices but fund investors, recognising that higher yields are bad for stock markets, clearly contracted buyers remorse after ploughing so much cash into equities in the previous two months."

Glyn added that, whilst most stock markets were flat across the month, the UK was an exemption, where the index fell as equity investors reeled at the impact of UK bond yields soaring above Italy’s for the first time since the "mini" Budget.

tom.dunstan@ft.com