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The UK stock market’s strongest showing for 16 years failed to stem sharp outflows from mutual funds focused on domestic equities last year.
Retail investors pulled a net £11.1bn from UK equity funds in 2025 — the tenth straight year of outflows — as they ballooned to £71bn over the past decade, according to data from the Investment Association, the trade body.
This was despite the FTSE 100 surging by 21.5 per cent last year, its biggest gain since 2009, as it hit a series of record highs along the way and outperformed even Wall Street’s all-powerful S&P 500.
The wave of selling in 2025 was only marginally lower than in 2023 and 2024, when outflows were £13.6bn and £12.7bn respectively as the UK’s flagship index eked out modest gains.
Funds also suffered outflows despite efforts by chancellor Rachel Reeves to drum up interest in the UK’s equity market as she heralded what she claimed were “the first signs of a new golden age for the City”.
“UK equity funds have had a dismal decade,” said Laith Khalaf, head of investment analysis at fund platform AJ Bell.
“Part of this can be explained by the shiny lights in Silicon Valley attracting money to the other side of the Atlantic. Part can be explained by the fact that DIY investors feel more comfortable investing in individual stocks in their domestic market, so they have less call for a fund manager to do this for them.”
Jason Hollands, managing director of wealth manager Evelyn Partners, said speculation over tax changes in the two months up to November’s Budget also prompted investors to sell UK stocks.
The continued outflows were part of a broader exit from stock markets last year, with £16.8bn pulled from equity funds in general, higher than in 2024, with even previously popular sectors such as US equities seeing outflows in the second half of 2025, amid geopolitical uncertainty and concerns over the valuations of artificial intelligence-related companies.
Khalaf feared the exodus from UK equity funds was structural, however, and likely to continue for much longer.
“A big part of the story lies in the shift towards passive investment strategies and the global benchmarking of portfolios. The UK stock market makes up just under 4 per cent of the MSCI World Index, and yet the UK All Companies fund sector is the second most popular after the Global sector, with £148bn of assets,” he said.
“This means that despite a decade of outflows, UK fund investors are still heavily overweight UK stocks compared with global benchmarks. The unwinding of this overweight position may therefore yet have a long way to run.”
Overall, the IA data points to UK investors battening down the hatches last year, with ultra-defensive money market funds enjoying record net inflows of £6.9bn, even as equities were out of favour.
“Although markets were exceptionally strong last year across most asset classes, for UK retail investors we had high levels of interest rates, so investments were competing with cash, and cost of living pressures,” said Hollands. Money market funds are one of the few asset classes that benefit from elevated interest rates.
Some broader trends are at play, however. The switch from actively managed funds, which attempt to beat the market, to passive ones, which just track it, continued apace last year, with £15.1bn being withdrawn from active funds and £12.8bn going to passive ones.
“Over the last four calendar years £120.9bn has been withdrawn from active funds,” said Khalaf. “Things are still abysmal out there for active fund managers.”
The trend towards passive investing has helped fuel a shift in the UK and elsewhere from mutual funds to cheaper, more transparent exchange traded funds, most of which are passive.
Although it is not possible to break down flows by country, ETFs saw record net inflows last year of $397bn in Europe including the UK, pushing assets to a record $3.2tn, according to ETFGI, a consultancy.
“ETFs have grown in popularity. It has been the area where there has been the most new launch innovation,” said Hollands.
Despite the outflows, strong investment returns pushed total mutual fund assets up from £1.49tn to £1.62tn.
And Hollands believed 2026 could be a better year for the UK fund industry as interest rates continue to fall, sapping the attraction of cash savings accounts and helping to relieve pressure on personal finances.