UK Retail Investors Remain Loyal to US Equities
UK retail investors persist in investing in the US, despite the S&P 500 losing 20% this year and the deteriorating outlook for high-growth tech stocks that dominate US indexes.
Data from the Investment Association, a trade body representing investment managers, shows they sunk money into North American equity funds for three consecutive months through April. Managers invested £241m in US equity funds in April, compared to £689m outflows for UK funds in the same month.
According to the data, UK investors have taken money out of UK equity funds over the past six years, favoring US and global investment strategies, while tech stocks such as Meta, Amazon, Apple, Netflix and Alphabet soared.
Oil and commodity prices have risen significantly in 2022 due to the hit to oil prices from the war in Ukraine, while threats of rising interest rates have depressed valuations of fast-growing tech companies but often lacking.
This benefited the FTSE 100, with its heavy weighting towards oil and mining stocks; it’s down just 1.8% in 2022 compared to the nearly 30% drop for the Nasdaq 100, where the Faangs and other tech companies are listed.
Despite these losses, retail investors have not taken refuge in UK equity funds, according to AI data. “We have yet to see funds exposed to the UK helped by rotation from growth to value. There is still a lot of money coming out of UK funds; there is a pattern of persistent exits,” said Miranda Seath, head of market intelligence at the trade body.
Although North American equity funds, made up mostly of US equities, continue to see more inflows than their UK counterparts, they saw net outflows in 2021 for the first year since 2016, and also lost 722 million in January 2022, before seeing inflows in the next three months.
While US funds remain popular, global equity funds have seen the most inflows over the past 10 years, with over £13bn invested in 2021, showing that investors are looking for exposure to more diversified funds, at the expense of a specific country or region. funds.
Big tech companies remain popular among investors using stock-picking platforms. Hargreaves Lansdown, the UK’s largest investment platform for managers and investors, continues to see US fund inflows, with Tesla, Meta and Amazon being the organization’s top three overseas stocks for the first half of the year.
Among Interactive Investor clients, there have been net inflows into North America-related sectors every month this year, with the exception of January 2022: “The North America sector has been constantly [in the] the top three in terms of inflows over the past three months as retail investors are undeterred by US markets,” said Dzmitry Lipski, Head of Retail Investor Platform Funds.
Meanwhile, Charles Schwab, the US retail investor platform that gives UK investors access to US stocks, said it continued to benefit from higher trading activity than before the pandemic.
Richard Flynn, managing director of Charles Schwab UK, said: ‘The pandemic trade ‘boom’ has receded [but] we are currently seeing significantly higher levels of engagement than in the pre-pandemic market.
Among UK Schwab investors, US trade fell by a third in the first quarter of 2022, but remained 50% higher than in the first quarter of 2020 – a sign that, for now at least, investor faith Britons in the American dream endures. .