Isa season flows rise fivefold

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UK Isa savers flooded back into equities this year as they rushed to take advantage of booming stock markets.

Some £1.93bn was invested in equity funds between February 15 and April 5, the end of the 2023-24 Isa season, according to funds network Calastone. This was five times the amount invested in the same period last year, and the highest level in the past 10 years.

Edward Glyn, head of global markets at Calastone, said: “[There has been a] bull run in equity markets since the beginning of the year . . . investors see this as a significant opportunity to add to their holdings.”

Nearly £7bn was invested on a net basis in equity funds by UK savers in the first quarter of this year, with an additional £2bn flowing in during April.

The S&P 500 rose 10 per cent between the start of the year and April 5, with the Dow Jones up 3 per cent and the Dax gaining 8 per cent.

Glyn added that investors are “risk on”, which means they are more willing to take bigger risks when investing. This prompted outflows from money market funds, which saw the first outflows from UK investors in April since January 2023 with £100mn withdrawn on a net basis in the month.

“Investors are switching out of those money market funds, which are traditionally more of a safe haven asset class, and chasing high yields via risky assets,” said Glyn. Though Calastone’s figures are not comprehensive, they are seen as offering a useful snapshot of investment fund flows.

Isa season refers to the period between February and April where savers are encouraged to make full use of their £20,000 Isa tax-free limit before a new tax year begins on April 6. This allowance can be used across stocks, cash and other investments, and no tax is payable on savings interest, dividends or capital gains.

Despite the FTSE 100 rising since the start of the year, culminating in it hitting a record high in April, UK investors continued to pull money out of their home market. Some £665mn was redeemed from UK equity-focused funds in April, the 35th consecutive month of outflows for the sector during which £21.3bn has been divested.

In April, chancellor Jeremy Hunt announced an attempt to boost investment in London-listed companies by increasing the tax-free allowance for owning UK equities. The government is moving forward with proposals for a new “British Isa” that would provide savers with an additional £5,000 in their tax-free allowance when investing in UK companies.

UK savers’ investment into fixed income funds continued in the first quarter of the year, with £1.2bn invested, and a further £422mn in April. Investment platform Hargreaves Lansdown in April said UK government bonds were its most popular fixed-income product in the first three months of this year as investors locked in attractive yields. 

Emerging markets funds also saw net outflows, with UK investors breaking an 18-month run of net investment and selling £162mn of their emerging markets holdings in April.