Fund managers dumping UK stocks at fastest rate in two decades
The scale of investor doubts over the British economy has been laid bare after fresh data found fund managers were pulling out of UK stocks at a pace not seen in more than two decades.
Average equity allocations to the UK dropped from a net 2 per cent underweight in August to a net 20 per cent underweight in September, according to Bank of America’s global fund manager survey, marking the biggest monthly rotation away from UK equities since 2004, and the second biggest allocation drop on record.
Allocations into UK stocks, which is now at its lowest in 18 months, is now considered a contrarian trade, Bank of America analysis suggested, in signs investors were reeling from Britain’s sluggish growth and the prospect of major tax hikes to be unveiled in the Chancellor’s budget later this year.
Hugh Sergeant, a fund manager at River Global Investors, said: “Investors are currently terrified of this Government, and particularly the next Budget.”
The analysis adds to a growing number of flashing warning lights on the UK’s economic dashboard, alongside stagnant GDP growth and a decline in payrolled employment.
Businesses are bracing for tens of billions in fresh tax hikes in the autumn, as chancellor Rachel Reeves turns the screw on employers in a bid to shore up the public finances and fund Labour’s increased spending commitments.
Shadow Business Secretary, Andrew Griffith MP, said: “This is incredibly serious. Investors are selling out of Britain at the same time as wealth creators are leaving.
“Under Rachel Reeves, the tide is going out and leaving the economy parched of investment and skills. Our formidable strengths remain but they can’t outrun the headwinds from Labour’s policies.”
AI helping productivity but could be in a bubble
The Bank of America survey also found that investor sentiment on expectations for global growth rose to the highest level since February – but a net 16 per cent of fund managers continue to expect the global economy to weaken.
The survey showed as many as half of fund managers believe that adoption of AI was already leading to productivity increases, with another 15 per cent believing the productivity improvements would happen in 2026.
However, investors were divided over whether AI stocks were in a bubble, with 42 per cent believing there was an AI bubble, an uptick from last month, and 48 per cent believing there was no bubble.