Fund flows dipped sharply in July as investors ditch UK equities

Investors pumped £278 million into funds in July, but sold off billions of pounds of equities amid domestic political uncertainty and global volatility.

While some investors were spooked, fund flows narrowly remained positive according to the latest data from the Investment Association, an industry body representing the UK’s investment managers.

Although on balance investors were confident in July, with more money invested than cashed out, the month’s figures are a sharp drop from the £3.6 billion inflow recorded in June.

In particular, investors continued to sell off their equities in July, with the asset class having outflows of £2.1 billion amid the continuing war between the US and Iran.

The UK saw the largest fund outflows in July as retail investors took a collective £1.6 billion out of British equities, the highest figure since January 2025. Overall net outflows from the UK were £1.3 billion across all asset classes.

This was likely a result of political uncertainty at home as Andy Burnham ousted Keir Starmer as prime minister, leading investors to take a more cautious stance as they waited to see the new premier’s plans for the country.

While equities fell out of vogue in July, more retail investors turned to fixed income amid the global and domestic uncertainty, with net flows in the month reaching £863 million, the fourth consecutive month of inflows for the asset class.

Miranda Seath, director of market insight & fund sectors at the Investment Association, said: “As domestic and geopolitical uncertainty grows, July saw modest net retail sales of £278 million and a six-month low for gross sales at £30.1 billion, a sharp decline to the inflows experienced in H1.

“The composition of flows points to more cautious positioning, with investors continuing to favour fixed income and mixed asset funds while stepping back from equities.

“While July’s uncertainty has led to muted flows, this month’s data suggests that many investors are not withdrawing from markets altogether, but are remaining selective and continuing to seek diversified, lower-cost exposure alongside more defensive allocations.”

What did Brits invest in July?

The asset class with the largest inflows in July was fixed income, with £863 million placed in it.

Government bonds were the most popular fixed income investment (£333 million), followed by strategic bonds (£319 million), mixed bonds (£181 million), and specialist bonds (£122 million).

Mixed asset investments had the second-largest inflows of £733 million, followed by miscellaneous other investments (£589 million), and money markets (£206 million).

On the other hand, property saw minor outflows of £0.05 million, while equities saw the highest outflows of £2.1 billion.

While British retail investors sold off investments in their home country, they kept investing in America.

North America funds had the largest retail inflows during July, as Brits poured £192 million into them. This was followed by global funds (£50 million), and Europe funds (£23 million).

UK funds saw the largest outflows, as a massive £1.6 billion was taken out of British funds. Seath suggested the outflows were a result of the political uncertainty in Britain.

“Investors will be looking ahead to the new Government’s first Autumn Budget and the forthcoming 10-year plan for Britain in order to inform investment decisions based on the direction of economic, tax and investment policy, particularly in light of renewed inflationary pressure further tightening the UK’s fiscal headroom.”

Overall Asia funds had the second-largest outflows of £97 million, followed by Japan funds with outflows of £81 million.

Will net inflows turn to net outflows?

While investor sentiment has been buoyant so far this year, with net flows not turning negative for all of 2026 despite geopolitical headwinds, how long will the optimism last?

Not for long, seems to be the answer as investor confidence fell sharply in August, according to Boring Money’s index.

The index fell 12% from 52 to 46 in August as investors became increasingly pessimistic about both the UK and global economy after an optimistic June and July.

Meanwhile, 29% of investors say they are planning to move more investments into cash over the next six months, according to the research, indicating we could see more money taken out of the stock market in the remainder of 2026.

Holly Mackay, CEO of Boring Money, said: “June and July were positive months as investors reacted well to the memo of understanding ending the Iran conflict and closer to home, Burnham enjoyed a brief honeymoon period. However August’s data show a less positive mindset as investors exhibit lower confidence in both local and global economies and report plans to move more to cash and to invest less.

“Continued geopolitical turmoil, higher energy bills, early thoughts on the upcoming October Budget, and assumed tax hikes coupled with looming higher interest rates are weighing on investors who are a lot more bearish than they were in the summer.”