Investors have had more than £130bn from UK-focused funds in the10 years following the Brexit referendum. According to data from Morningstar, net outflows from UK equity funds stood at £134.8bn at the end of April, with withdrawals increasing by £25bn over the 12 months to July alone. The products notched up their worst year for outflows in 2023, when almost £30bn was pulled.
Veteran stock picker Richard Buxton, who spent almost 40 years as a fund manager in London, said a once deep and liquid UK equity market had shrunk “to a small puddle” since the Brexit referendum.
“When I started, investors were nervous to allocate to the US because what you might gain on Wall Street you probably lost on the dollar,” said Buxton, who retired from Jupiter in 2023. He added: “Those days are long gone and the self-inflicted wound of Brexit saw sterling plunge, with no prospect of ever regaining the lost ground. This has again increased the attraction of investing outside the UK market.”
Head of markets at AJ Bell, Dan Coatsworth, said that international investors shunned UK stocks over fears of “economic upheaval” following the vote to leave the EU.
“Brexit created considerable uncertainties and foreign investors simply looked elsewhere for places with a clearer path forward. There is typically a home bias towards a stock market, but even domestic investors lost interest in the UK market if you look at fund flows,” he said.
The outflows come as London struggles to maintain a grip on listed companies. Over the past decade several of the UK’s best-known companies have de-listed from the London Stock Exchange in favour of the US.
Flutter, the online gaming and betting firm, announced in June it would delist from the London Stock Exchange to New York, having previously moved its primary listing to the US. Other firms that have shifted London listings to New York include money transfer company Wise and equipment rental firm Ashtead.
Some UK companies have been snapped up by private equity players, including fund platform Hargreaves Lansdown and cyber security specialist Darktrace. Tate & Lyle will also disappear from the London stock market after it was snapped up by US-headquartered rival Ingredion.
Meanwhile, London-headquartered fund group Schroders will delist from the FTSE once its 9.9bn acquisition by US-headquartered rival Nuveen is finalised.
“We have lots of entrepreneurial spirit in the UK, lots of net new business formation but companies either stay private or list in the US because that’s where the money is,” said Buxton.
“The only buyers of UK equity are overseas companies buying businesses: my retirement fund has seen Darktrace, Schroders and Tate & Lyle go. I have friends running global equities and they haven’t looked at a UK company in years. They have plenty of choice in the US, Europe, Japan and Asia.”
Several government initiatives have been implemented to try to encourage more domestic investment into UK shares, including an overhaul of the cash ISA arrangement. In addition, a government backed retail investing campaign was launched in April to encourage more people out of savings into capital markets.
AJ Bell’s Coatsworth said the past two years have seen a “significant turnaround” in terms of the performance and valuation of UK stocks, adding that some overseas investors have sought to increase their exposure to non-US companies, including those in the UK.
Sentiment towards the UK is in a much better shape than post-Brexit and during the pandemic. The key challenge is sustaining this momentum. The government’s push to get more people investing is positive, yet the UK has none of the excitement that has fired up the US with SpaceX’s IPO or AI’s tech revolution. Looser listing rules could attract more IPO, but the political backdrop is unhelpful and so is the stagnant economy.
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