Eve Maddock-Jones (pictured), editor at Investment Week
Many of the company results and trading statements over the past few weeks have all shared one common thread, that worries about the upcoming Autumn Budget are contributing to high levels of outflows from UK-based assets.
Brooks Macdonald, Liontrust and Premier Miton all linked the negative outflows in their respective statements to ‘investors' anxieties' about the Budget on 30 October.
AJ Bell's CEO Michael Summersgill noted that there had been a "noticeable change in both customer contributions to pensions and tax-free cash withdrawals" from the platform ahead of the Budget.
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Our news editor Valeria Martinez touched on this UK outflows phenomenon in her previous Friday Briefing, after investors pulled £666m from UK equity funds in September and UK-focused equity income sector lost £416m, according to the latest Calastone Fund Flows index.
UK equities enjoyed a now evidently short-lived resurgence over the summer among investors after Labour won the landslide election, colloquially referred to as the ‘honeymoon period'.
At the time, the significant 239 seat majority helped remove some sentiment barriers for global managers looking to invest in the FTSE in the weeks after the election, as experts heralded a period of stability for the UK while the political uncertainty was – temporarily – removed from the table.
But as Rae Maile, equity research analyst at Panmure Liberum, described it to me: "September was bad, as you had Labour's honeymoon coming to a crashing halt."
Provisional data from LSEG Lipper showed that since mid-September UK domiciled funds have haemorrhaged millions.
Dewi John, LSEG Lipper Research lead for Europe, said "while the data is provisional, the direction and magnitude is clear."
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This trend cannot be solely pinned on the Budget however, as John said it was "not possible to definitively attribute the cause".
"[But] given the relatively benign economic environment and the timing, investor expectation around the Budget could be a credible explanation," he added.
This is a key clarification to the narrative around Budget anxieties hurting UK fund flows at the moment.
Although there was a post-election boom, the UK has been perpetually underinvested in, with cheap valuations lingering across the market as a result of the 2016 Brexit Referendum vote, which it has struggled to shake off for almost a decade.
So, UK outflows have not been a new trend, indeed, neither Brooks nor Liontrust reported positive inflows in their previous set of reporting, well before the Budget bogeyman came into the picture.
Those UK specific anxieties did not dissipate during the summer resurgence, rather they were just not front and centre for a period.
Ross Luckman, a fellow analyst working with Malie, said "things had been improving, but that came against months and months of outflows prior.
"So, it is not like the Budget suddenly came along and caused these outflows."
Maile explained to me that what had changed now is that the Treasury's talk of a £22bn fiscal ‘black hole' and warnings of tough choices ahead has brought the dower reality of the UK's fiscal situation into the spotlight, which has effectively acted as a bucket of cold water over the positive fund flows.
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"There was a lot more talk about the state of public finances, the ‘black hole' and the need to increase taxes, and more speculation about what exactly those taxes would be, and in particular, the threats to inheritance tax," Maile said.
"The Budget crystallises this and while we cannot necessarily quantify the fund flows impact, it seems a fair assumption to say it must be related to the Budget and an increased level of uncertainty."
Ultimately, the Budget has acted as a "contributing factor" to the UK's entrenched position as being out of favour with investors generally, "but it is by no means the only reason", added Ross.
"It is more that it has derailed that trajectory of an improving flow environment and put a bump in the road."
The truth of it, as Maile said "is a very straightforward thing: investors hate uncertainty, and at this stage, we have uncertainty".
"The hope is that with the Budget we get some clarity, even if we do not like it, and then you can work on what the plans are going to be," he added.
This article was first published as part of the Friday Briefing series, which is available exclusively to Investment Week members each week. Sign up here to receive the Friday Briefing to your inbox each week.
