Funds focused on º£½ÇÊÓƵ stocks endured their most disappointing year on record last year, as investors withdrew nearly £10 billion from the market, new figures have disclosed.
While global equity funds attracted a historic inflow of £27.2 billion throughout 2024, º£½ÇÊÓƵ-centric funds experienced a notable exodus, bleeding roughly £9.6 billion in their slowest year to date when compared to the wider market's performance, Calastone's data indicates, as reported by .
US funds secured net inflows of £11.9 billion during 2024, a stark increase from the mere £5 million in 2023, with over half of those inflows recorded in the first quarter of 2024. This stark contrast between London-focused funds and those investing in international equities emphasises the predicament facing the London Stock Exchange and exemplifies the considerable challenges confronting both the City and government officials.
Up until November, there was a prolonged trend of outflows from º£½ÇÊÓƵ equity funds lasting 41 consecutive months, with the pace intensifying in October as investors sought to evade the potential blow of an extensive capital gains tax (CGT) rise threatened by Rachel Reeves. Persistent withdrawals have exerted downward pressure on valuations within the capital and heightened concerns over a potential drift of companies to overseas markets.
Calastone reported that the total outflow of £9.56 billion throughout the year remained lower than in 2023 but stressed that "set against the huge inflows to equity funds overall during the year, it was the worst relative performance seen by the unloved º£½ÇÊÓƵ-equity sector".
The rate of redemptions decelerated towards the year's end, with December's net sales of £221m representing the slowest level of outflows since May 2021. November witnessed a resurgence of investors into the market following Reeves' less than anticipated CGT hike.
Enhancing the cash flow into the London Stock Exchange is viewed as a significant challenge for lawmakers and investors in their quest to rejuvenate the City of London's fortunes. Despite the Financial Conduct Authority revamping its listing rules in July to attract more firms to the market, numerous companies cited a lack of liquidity as one of the primary reasons for their departure from the exchange in 2024.
A mere 17 firms went public on the London Stock Exchange last year, while bids worth some £52bn were made on listed companies. Additionally, a total of 88 firms abandoned their main listing on the London Stock Exchange.
Pressure growing on Starmer and Reeves
Pressure is mounting on Keir Starmer and Rachel Reeves to revitalise the City with robust policy measures and tax incentives. A survey conducted by City AM and Freshwater this week revealed that over half of voters believe the government needs to do more to restore the Square Mile's fortunes.
A stamp duty on share trading has been central to warnings that the º£½ÇÊÓƵ is penalising investors in its domestic market and losing ground to rivals such as the US, where no equivalent charge exists.
"Not only does this disincentivise investment in º£½ÇÊÓƵ equities, it also makes them less attractive than those in other jurisdictions," commented John Godfrey, managing director of public affairs at the City º£½ÇÊÓƵ.
Reeves announced that financial services will be integral to the government’s "growth mission" during her inaugural Mansion House address to the sector. She unveiled a range of initiatives, including the introduction of a new private stock market system known as Pisces.
"Economic growth and driving more investment in the º£½ÇÊÓƵ is our number one mission and the financial services sector is central to this, which is why this year we are publishing the first-ever Financial Services Growth and Competitiveness Strategy to deliver long-term growth in the sector and why we have already issued new growth-focused remit letters to the regulators," a spokesperson stated.
