Surging inflows to bonds and mixed-asset funds in May signal caution as investors trim equities

UK investors drove near-record demand for mixed asset funds in May and the strongest fixed income inflows in three years, according to the latest Fund Flow Index from Calastone, the largest global funds network.

Investors moved money out of money market funds while also trimming equity exposure, reallocating towards income-producing and diversified assets during the month.

Bond yields draw investors back into fixed income

Most notably, surging bond yields drove investors decisively back into fixed income, with bond funds attracting their strongest monthly inflows since June 2023. Investors added a net £877m to their bond-fund holdings, the sixth best month for the sector on Calastone’s 12-year record. The strong inflow to bond funds was matched closely by substantial outflows from money market funds – reaching a net £669m for the month, the third worst month for the sector on record.

Edward Glyn, head of global markets at Calastone said: “Bond markets bottomed out in the middle of the month as yields touched highs last seen before the Global Financial Crisis. This offered an enticing opportunity to switch out of safe-haven money market funds whose returns mirror central bank policy rates and to lock into those multi-year high yields for the longer term.”

Strong demand for diversification

In an aligned move that showed investors spreading risk across asset classes, they also strongly favoured multi-asset funds in May, adding a net £2.72bn, the second-best month on record for the sector following the record inflow in April (£3.32bn).

Equity outflows also show reduced risk appetite

By contrast, equity funds saw selling pressure build again after the brief reversal in April. They saw net redemptions of £257m overall, driven primarily by outflows from emerging market (-£390m), European (-£213m), and Asia (-£232m) equity strategies. Once the most favoured equity strategy, global equity funds were flat over the month (+£51m) and have added almost no net new capital in the last 14 months, while US equity funds remained in positive territory, attracting £238m as the stock market there accelerated once again after a positive earnings season from technology titans.

UK equities see rare inflow

In a surprise reversal, UK-focused equity funds saw a net inflow for the first time since November 2024^[1], focussed on a handful large index funds. This positive month marks a notable break in trend after a prolonged period of domestic equity withdrawals.

Edward Glyn commented on the overall picture for the month: “May’s data suggests investors were putting money back to work, but not without caution. Significant outflows from cash funds with strong inflows into both fixed income and multi-asset funds indicate that investors were ready to redeploy capital, but many chose diversification over concentration, favouring strategies that balance income, resilience, and flexibility. Multi-asset funds in particular offer a route into markets without requiring a high-conviction call on any one region or asset class. They have been strongly in favour all year.

“Equity flows reflect that same caution – modestly reducing risk by withdrawing capital and then being picky on where to place it. Investors continued to favour the US, while pulling back from emerging markets, Europe, and Asia. The inflow to UK equity funds is encouraging and may indicate sentiment towards domestic assets is becoming less negative, but it was narrowly focused, therefore it’s too soon to call it a broader trend. Overall, May looked less like a return to risk and more like a carefully managed re-entry into markets.”

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