UK investors poured billions into bond and multi-asset funds in May while pulling money from cash and equities, signalling a growing preference for income and diversification over outright risk-taking.
According to Calastone’s latest Fund Flow Index, bond funds attracted £877m during the month, their strongest inflow since June 2023, while mixed-asset funds added £2.72bn, marking the sector’s second-highest monthly inflow on record.
The surge in demand came as investors withdrew £669m from money market funds, the third-largest monthly outflow on record, suggesting many are moving cash off the sidelines and back into longer-term investments.
The data points to a significant shift in investor behaviour as elevated bond yields make fixed income increasingly attractive relative to cash.
Calastone head of global markets Edward Glyn said investors were taking advantage of bond market weakness earlier in the month to lock in yields not seen since before the global financial crisis.
“Bond markets bottomed out in the middle of the month as yields touched highs last seen before the Global Financial Crisis,” he said.
“This offered an enticing opportunity to switch out of safe-haven money market funds whose returns mirror central bank policy rates and to lock into those multi-year high yields for the longer term.”
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The move into bonds was mirrored by continued demand for mixed-asset funds, which have now attracted more than £6bn over April and May combined.
The strength of multi-asset inflows suggests investors remain wary of making concentrated bets on equity markets despite signs of improving sentiment.
While investors redeployed capital from cash, equity funds continued to struggle, recording net outflows of £257m.
Emerging market, European and Asian equity funds were the biggest casualties, losing £390m, £213m and £232m respectively.
Global equity funds were broadly flat, attracting just £51m, while US equity funds remained the only major bright spot, drawing £238m as enthusiasm for large technology stocks continued following a strong earnings season.
Glyn said the pattern of flows reflected a measured return to markets rather than a wholesale embrace of risk.
“Significant outflows from cash funds with strong inflows into both fixed income and multi-asset funds indicate that investors were ready to redeploy capital, but many chose diversification over concentration, favouring strategies that balance income, resilience and flexibility,” he said.
“Overall, May looked less like a return to risk and more like a carefully managed re-entry into markets.”
One notable exception was UK equities, which recorded their first net inflow since November 2024.
Although the inflow was concentrated in a small number of large index funds, it represents a break from the prolonged period of withdrawals that has plagued UK-focused strategies over the past 18 months.