Money is flowing out of the London equities at a faster pace than ever, despite government efforts to boost the stock market.
According to Investment Association recent figures UK savers took £14 billion out of UK equities last year, the eighth consecutive year of outflows.
New research by SCM Direct for the Evening Standard suggests this situation is getting worse rather than better despite some experts insisting London shares are now so cheap they represent a buying opportunity.
SCM looked at money flowing through Exchange Traded Funds, an increasingly popular tool for both small investors and large institutions.
Of 17 European countries, only four – Austria, Norway, Germany, Holland – have seen greater percentage outflows of money this year. The largest UK equity ETF is the iShares Core FTSE 100 ETF which has a massive £14.8 Bn invested in it – this compares with the largest US Equities ETF worldwide, the SPDR S&P 500 ETF that holds $507 Bn in assets.
Alan Miller of SCM Direct said: “Europe as a whole has seen money coming in not out. This is part of the reason for the abysmal showing of the UK market this year – the FTSE 100 is up just 0.2% vs +10.6% for the Euro Stoxx 50.”
Miller adds: “There are some underlying fundamental reasons for the poor performance of UK equities, the over-representation in the ‘old’ economy i rather than tech, together with the ongoing uncertainties surrounding Brexit and its economic implications. Political instability, including changes in leadership and policy direction, has also contributed to a lack of confidence in UK equities. But this simply does not account for the gulf in performance and valuations between the UK and its peers.”
One problem is that pension funds have just 4% of their assets in UK shares compared to 50% in 1990.
This compares with Australia & Canada, both small markets, being 22% and 9% respectively of their pension funds. In fact, the pension fund that invests on behalf of Britain’s MPs and ministers, has just 1.7% invested in UK-listed companies.