Retail investors withdrew £2.4 billion from active funds in February, according to IA data released today. Laith Khalaf, head of investment analysis at AJ Bell, has shared his expert thoughts.
“Despite all the talk of a market rotation, money is still gushing out of actively managed funds and finding its way into index trackers. Retail investors withdrew £2.4 billion from active funds in February, taking total outflows in the first two months of the year to £7.1 billion. It’s still early days, but it doesn’t look like the fall in the S&P 500 has done anything to endear investors to active strategies. 2025 has seen a continuation of the trends we saw in the previous three years, where tens of billions of pounds left the active management industry.
“Much of that is finding its way into index trackers, which saw £1.8 billion of inflows in February. Some of it is leaving the funds market entirely. In 2025 to date, retail investors have taken £3.5 billion out of investment funds. Some of that money may stay invested, through ETFs and individual stocks. Some may be leaching out of the investment ecosphere as investors use it to pay down their mortgage, or switch to a cash savings account.
“UK equity funds also saw £1.4 billion of retail outflows in February, taking the running total in 2025 to £3.1 billion. Ironically the FTSE 100 is actually outperforming the S&P 500 so far this year, but the turn in performance hasn’t yet materially fed into the longer-term numbers that many investors will look at when making allocation decisions. There are also structural reasons why investors are turning away from UK equity funds, including the shift towards passive strategies and an unwinding of a historically high weighting to domestic equity funds in many investors’ portfolios.
“The continued outflows from UK equity funds will sharpen focus on what the government can do to help encourage investment in the UK stock market. One bright idea might be to start by not discouraging it through levying stamp duty on UK stock market purchases, which creates a performance drag on UK equity funds compared to their competitors investing overseas. If the government is concerned about the additional cost this could lump onto the Treasury, it could explore a specific carve-out for UK stock market purchases in ISAs at a fraction of the cost, estimated by AJ Bell to be somewhere in the region of £120 million* – essentially a rounding error in wider government spending terms.”
*Estimate based on analysis of total stamp duty paid by AJ Bell customers over the last 12 months, extrapolated across all UK ISA accounts.
