British retail investors are persisting with US investments, despite the S&P 500 losing 20 per cent this year and the worsening outlook for high-growth tech stocks that predominate in US indices.
Data from the Investment Association, a trade body representing investment managers, shows they plunged money into North American equity funds for three consecutive months up to April. Managers invested £241mn into US equity funds in April, compared with £689mn of outflows for UK funds in the same month.
According to the data, British investors have pulled money out of UK equity funds for the past six years, favouring US and global investment strategies, as tech stocks such as Meta, Amazon, Apple, Netflix and Alphabet have soared in value.
Oil and commodity prices have risen drastically in 2022 due to the hit to petrol prices from war in Ukraine, while threats of higher interest rates have depressed valuations for fast-growth but often lossmaking tech companies.
This has benefited the FTSE 100, with its heavy weighting towards oil and mining stocks; it is down just 1.8 per cent in 2022 compared to the almost 30 per cent drop for the Nasdaq 100, where the Faangs and other tech companies are listed.
Despite these losses, retail investors have not taken shelter in UK equity funds, according to the IA data. “We haven’t yet seen funds with UK exposure helped at all by the rotation from growth to value. There’s still a lot of money coming out of UK funds; there’s a trend to persistent outflows,” said Miranda Seath, head of market insight at the trade body.
Although North American equity funds, made up predominately of US stocks, continue to see more inflows than their UK counterparts, they had net outflows in 2021 for the first year since 2016, and also lost £722mn in January 2022, before seeing inflows in the following three months.
While US funds remain popular, global equity funds have had the most inflows over the past 10 years, with more than £13bn invested in 2021, showing that investors are seeking more diversified fund exposure, at the expense of single-country or region-specific funds.
Large tech companies remain popular among investors using stockpicking platforms. Hargreaves Lansdown, the UK’s largest director to investor investment platform, continues to see inflows into US funds, with Tesla, Meta and Amazon the organisation’s top three overseas shares for the first half of the year.
Among Interactive Investor customers, there have been net inflows into funds within North America-related sectors every month this year, with the exception of January 2022: “The North America sector has been consistently [in the] top three in terms of inflows over the past three months as retail investors are not deterred from the US markets,” said Dzmitry Lipski, head of funds at the retail investor platform.
Meanwhile, Charles Schwab, the US retail investor platform that allows UK investors to access US stocks, said it was continuing to benefit from higher trading activity than before the pandemic.
Richard Flynn, managing director of Charles Schwab UK, said: “The pandemic trading ‘boom’ has receded [but] we are currently seeing engagement levels significantly higher than in the pre-pandemic market.”
Among Schwab’s UK investors, US trade dropped by a third in the first quarter of 2022 but remained 50 per cent higher than the first quarter of 2020 — a sign that, for now at least, British retail investors’ faith in the American dream lives on.
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