Investors placed £507 million into funds in March, according to data published by the Investment Association (IA) today.
March’s modest inflows were boosted by investors making use of allowances before the end of the tax year, following two consecutive months of outflows during a tricky investing environment.
However, the first quarter of 2025 has been shaped by looming concerns over Trump administration tariffs, rising inflation and an uncertain interest rate outlook. Net retail sales totalled a £3.0 billion outflow in Q1, the worst quarter since the £8.6 billion outflow recorded in Q4 2023.
Key findings for March
- Equity funds saw their first net inflow of 2025, with net retail sales of £535 million. North America continued to dominate equity inflows with net sales of £570 million despite market uncertainty.
- UK equity outflows eased slightly from February but remained high at £1.2 billion, and we saw the first inflows into European equities since July 2024.
- Bond funds saw outflows of £1.3 billion, with outflows of £1.2 billion from across the Corporate Bond sectors. These outflows follow fixed income inflows of £159 million in February.
- Money market funds took in £1.2 billion in net retail sales. While flows to money market funds are often volatile, these inflows may represent investors seeking flexibility ahead of longer-term allocation decisions.
- Mixed asset funds saw inflows soften to £149 million, from £397 million in February.
- Index trackers took in a net £1.4 billion, remaining strong though down on the net £2.2 billion in February. Equities dominated tracker inflows (£1.4 billion) with the strongest inflows to Global equity trackers (£617 million).
Key findings for Q1 2025
- Despite March’s inflow, total net retail sales for Q1 saw a £2.9 billion outflow, the worst quarter since the £8.6 billion outflow in Q4 2023.
- Q1 saw net retail outflows from equity funds of £3.9 billion, following a £3.4 billion outflow in Q4 2024.
- However, North American equities continue to attract inflows, with net retail sales of £1.4 billion over the quarter, while UK equities saw their worst quarter on record with outflows of £4.2 billion.
- Outflows in March (£1.3 billion) took the quarterly flows for bond funds into negative territory, with net retail outflows of £957 million. Q1 outflows follow a positive second half to 2024.
- Mixed asset funds saw inflows of £634 million, the first quarterly inflow since Q1 2023.
- Index tracking funds saw inflows of £5.2 billion, only a slight decline on the £5.3 billion inflow in Q4 2024. This follows a record £28.0 billion inflow into index trackers throughout 2024. Actively managed funds meanwhile saw outflows of £8.1 billion over Q1, up from £7.0 billion in Q4 2023.
- Responsible investment funds saw record quarterly outflows of £1.8 billion, up slightly on the £1.7 billion outflow in Q4 2024.
Downward pressure on equities
Following a difficult end to 2024, the year began where it left off for equites, with Q1 seeing £3.9 billion of outflows. Negative territory prevailed amidst growing investor concerns over the health of the UK and wider global economy.
Inflows in 2024 of £3.3bn made US equities the top selling equity region last year. However, US markets have seen a turbulent first quarter, marked by the AI stock sell off that followed the emergence of China’s Deep Seek, and a raft of policy changes floated or introduced by the Trump administration. We are also already beginning to see the impact of the long-anticipated announcement of trade tariffs, with clarity on which countries will be hit hardest remaining to be seen.
Despite this, North American equity inflows continued throughout March, with money coming into active funds as well as trackers – perhaps reflective of investors looking to lower their exposure to the largest tech stocks whilst maintaining a US presence in their portfolio. North America was the best-selling equity region in both the month and Q1 overall.
In the UK, equity outflows eased slightly in March but remained elevated at the levels seen in the second half of 2024. UK equity fund flows have continued to suffer alongside concerns over the economic growth outlook for the UK, with national insurance and tax rises dampening the outlook for growth and contributing to January and February’s outflows. We may see this sentiment shift in the coming months, particularly if investors look to re-balance away from the US – the UK has avoided being hit by significant tariffs and has set a clear fiscal policy, whilst UK stocks look good value.
Miranda Seath, Director, Market Insight & Fund Sectors at the Investment Association, said:
“Q1 was no easy ride for investors and outflows suggest that we’ve seen a drop in confidence following the more positive end to 2024. Whilst markets were initially buoyed by Trump’s victory in the US, volatile policymaking and uncertainty around the future of global trade make it challenging for investors to make clear cut decisions. This is reflected in the notably strong inflows into money market funds in March, as investors take a ‘wait and see’ approach.
“This uncertainty shows no sign of abating as investors await the full impact of the fallout from Trump’s global tariffs. Recognising the key headwinds and tailwinds for global markets, many investors will carefully assess their next move.
“If tariffs contribute to a rise in inflation, after a positive 2024 where inflation came significantly under control, we may see a pause in interest rate cuts. This has implications for future economic growth and equity and bond markets.
“Until we see more stable and consistent policy, we are likely to see further market volatility. Investors that started investing over the pandemic have experienced the market turbulence of 2022 and seen their investments rebound; their experience could help them navigate the coming months. Newer investors will have less experience of these conditions and interest rates available on cash savings are still fairly high, which could draw money away from funds if investors are worried about volatility.
“But when markets are turbulent, it is important that investors maintain a long-term perspective and carefully consider any investment decisions. Diversification across asset classes and geographies can also help manage risk and market downturns. While the uncertainty is set to continue in the near-term, over the long-term staying invested may be the best strategy.”
Commenting on these latest data, Victoria Hasler, head of fund research, Hargreaves Lansdown, said:
“After a rocky start to the year, March saw modest net inflows of £535 million into equity funds. Despite continued uncertainty, the IA North America sector remained the most popular with investors, seeing inflows of £705 million over the month, and global equities also remained popular. The biggest turnaround this month was seen in the European equity funds, with the IA Europe ex UK sector seeing net retail sales of £325m over the month. This was the first month of inflows for the sector since July last year.
“The UK, on the other hand, remains out of favour. Concerns over the growth potential of the UK economy due to National Insurance hikes and the impact of tariffs meant that UK sectors combined saw outflows of £1.2 billion over the month. The only other region to see outflows was Asia, although this was of a much smaller magnitude at £114 million.
“Money market funds were the real winners of the month though, receiving net inflows of £1.2 billion. Flows into money market funds are notoriously fickle and its likely that investors were using them as a place to park money which had been put into tax efficient accounts ahead of the tax year end.
“In line with the IA’s data, the list of the most popular funds on the HL platform in March was dominated by US and Global funds. Passive funds were by far the most popular choice with investors, with just one active fund, the Artemis Global Income fund, making it into the top 10. The more defensive nature of income strategies generally, combined with this fund’s value bias, is likely what attracted investors in what has been a turbulent time for markets. It was nice to see a European fund, the Legal & General European Index fund, in the top ten as well.
“The list of most popular investment trusts was dominated by the established stalwarts of the industry such as the City of London Investment Trust and the F&C Investment Trust. At more difficult times it is natural that investors would turn to trusted funds that have served them well in the past. There were also several infrastructure trusts on the list. Again, this seems a sensible choice to provide some diversification and income during tricky market conditions. Most of the infrastructure trusts are still trading on large discounts and could be a rich hunting ground for bargain-hungry investors.”
Whilst we saw similar trends in the ETF space to those we saw in open-ended funds, it is worth noting that gold was also popular with investors, with the iShares Physical Gold ETC being the third most popular ETF on the list. There were also two defence funds in the top 10 ETF list. This highlights one of the real advantages of ETFs, which allow investors to easily play specific themes and trends in their portfolios.”
