January blues hit investors as fund outflows return – IA retail stats release

The year began with a chill as January saw sharp fund outflows of £3 billion, reversing the £2.3 billion inflow in December, according to data published by the Investment Association (IA) today.

Following two months of inflows and cautious optimism, January’s outflow arrived as investors faced increased uncertainty over the path of interest rate cuts, anticipated tariffs, from the incoming Trump administration, and the emergence of DeepSeek and its impact on the AI race, as well as a mixed outlook for the UK economy.

Key findings for January 

• Equities bore the brunt of outflows with £2.9 billion withdrawn.
• UK Equities saw outflows of £1.7 billion, the highest since £1.9 billion in May 2024.
• Bond funds saw moderate inflows in January of £187 million. Specialist Bond funds were the top selling bond sector in January, with inflows of £187 million, while UK Gilts funds took in £175 million.
• Mixed asset funds saw a minimal £39 million inflow in January, following £231 million in December.
• Volatility Managed was the best-selling IA sector with net retail sales of £282 million.
• Index tracking funds remained in inflow with net retail sales of £1.8 billion, compared with £2.6 billion in December. Conversely, actively managed funds saw outflows of £4.7 billion.

Uncertainty on equities

After a positive end to 2024, equity funds faced fresh challenges in 2025, as they moved into outflows of £2.9 billion in January, compared to an inflow of £717 million in December. UK equities contributed £1.7 billion to this outflow, followed by Global equity funds, which saw £895 million outflow.

North American equities continued their popularity, remaining in inflow with net retail sales of £358 million, although this was much reduced on December’s £945 million.

Flows have been affected by investor uncertainty, as a raft of US policy changes were introduced under the new Trump administration driving a more complex geo-political environment. The announcement of new trade tariffs at the end of January will have had some impact. Many investors will be taking a ‘wait and see’ approach to see how the situation develops before committing to long-term investment.

A cloudy UK outlook

Closer to home, the reacceleration of inflation (with CPI rising to 3% in January as transport and food price rises drove inflation higher), paired with weak GDP growth at the end of 2024 has continued to dent investor confidence in UK equities and outflows have worsened.

UK All Companies was the worst selling IA Sector in January (-£1.2 billion) and outflows from the UK Smaller Companies sector reached £206 million – the highest since £235 million in May 2024.

Smaller UK companies typically have higher revenue exposure to the domestic economy, so outflows from the sector indicate broader investor concern over the outlook for the UK economy as businesses brace for the rise in national insurance contributions in April.

Miranda Seath, Director, Market Insight & Fund Sectors at the Investment Association, said:

“The reversal of fund inflows in January to an outflow of £3 billion emphasises that investors are exercising caution in a complex and fast moving geo-political and macro-economic environment.

“The threat of the US imposing tariffs has now become reality. We have also seen a new Chinese entrant in the AI race, DeepSeek, and this briefly introduced market volatility in the US. Although valuations have rebounded, investors with an equity growth objective are waiting to see how where growth opportunities may come as the introduction of tariffs and fast changing geo-political events present a complex picture for markets.

“In the UK, all eyes are on the outlook for growth. The forecast from the Office for Budget Responsibility, due out at the end of March, will tell us more about the Government’s ability to meet its fiscal targets and give an indication of whether further tax rises may be necessary. The recent Bank of England base rate cut may be the last for some months as inflation rises. These factors will affect the outlook for UK equity and debt investment, as well as the UK economy. A more certain environment would help investors and their advisers make confident decisions on where to invest capital – it is not yet clear when this will come as they navigate what is set to be a year of change.”

ENDS

APPENDIX

FUNDS UNDER MANAGEMENT AND NET SALES - January 2025

BEST SELLING INVESTMENT ASSOCIATION SECTORS

The five best-selling Investment Association sectors for January 2025 were:

1. Volatility Managed with net retail sales of £282 million.

2. Specialist Bond followed with net retail sales of £187 million.

3. North America with net retail sales of £183 million.

4. UK Gilts with net retail sales of £175 million.

5. North American Smaller Companies was fifth with net retail sales of £174 million.

The worst-selling Investment Association sector in January 2025 was UK All Companies which experienced outflows of £1.2 billion.

NET RETAIL SALES BY ASSET CLASS

Fixed Income saw £187 million in inflows.

Property saw £75 million in inflows.

Other saw £72 million in inflows.

Mixed Asset saw £39 million in inflows.

Money Market saw £456 million in outflows.

Equities saw £2.9 billion in outflows.

NET RETAIL SALES OF EQUITY FUNDS BY REGION*

North America saw net retail inflows of £358 million.

Japan funds experienced outflows of £22 million.

Europe funds experienced outflows of £106 million Asia funds experienced outflows of £264 million.

Global funds saw net retail outflows of £895 million. UK funds saw net retail outflows of £1.68 billion.

TRACKER FUNDS

Tracker funds saw net retail inflows of £1.76 million in January 2025. Tracker funds under management stood at £388.7 billion at the end of January. Their overall share of industry funds under management was 25%.

RESPONSIBLE INVESTMENT FUNDS

Responsible investment funds saw a net retail outflow of £386 million in January 2025. Responsible investment funds under management stood at £108.4 billion at the end of January. Their overall share of industry funds under management was 7%.