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Investors began returning to UK equity funds in November following three-and-a-half consecutive years of monthly withdrawals and a sharp sell-off ahead of the Budget.
Funds investing in British shares raised a net £317m from retail investors in November, according to data provider Calastone.
The inflow marks a long-awaited reversal in net outflows, with individuals withdrawing more than £25bn for 41 consecutive months since May 2021.
Investors have shunned British stocks in recent years in favor of global stocks, particularly fast-growing stocks such as US technology companies.
The change in sentiment comes as equity funds more broadly saw record outflows in October as UK-based investors withdrew their money over concerns that the Chancellor would raise capital gains tax (CGT). I woke up in response to what happened.
In her Budget at the end of October, Chancellor of the Exchequer Rachel Reeves said she would immediately increase CGT from 10% to 18% for low-income earners and from 20% to 24% for high-income earners.
“The prospect of the biggest tax increase budget since 1993 has sparked a scramble to sell equity funds and protect the gains from the tax increase,” said Edward Glynn, head of global markets at Calastone.
He noted that investors poured a record £3bn into equity funds in November and said: “Investors were keen not to be out of the market for too long.” He said these flows were “all aimed at minimizing tax bills.”
As a result, UK equity funds may be experiencing a “pause” in outflows rather than an upturn, Glynn said. “There is no significant catalyst for a full-scale resurgence of interest in the much-loved UK stock market any time soon,” he added.
But Abdon fund manager Rebecca MacLean said the increase in takeover activity was a sign that UK stock prices were attractive.
“The inflows into UK equity funds show that the well-conceived valuation thesis for UK equities is starting to resonate,” he said.
He added that companies have “consistently responded to attractive discounts on UK equities through continued share buybacks and takeover offers at significant premiums”.
Ben Yearsley, investment director at consulting firm Fairview Investments, said: Bids are also being received from companies. ”
Dealing in the UK accelerated in the last week of November, with four takeover offers worth a total of £5.3bn announced.
Mr Yearsley said the rise in CGT was “not as bad as expected”, adding that the lack of a dividend tax increase was another incentive for investors looking to take advantage of October’s sell-off. UK equity funds suffered net outflows of nearly £1bn in October, according to Calastone.