Fund outflows fell to £562m in February after £3bn of outflows in January, according to data from the Investment Association (IA).

Despite this, the association warned that investors were facing increased macroeconomic uncertainty as US President, Donald Trump’s, tariffs shift from rhetoric to reality.

Equities continued to dominate outflows, with investors taking out £1.6bn from equity funds.

This was driven by outflows from UK equity funds, which saw £1.4bn of outflows during the month, down from £1.7bn in January.

There were inflows of £1.4bn into equity trackers in February, primarily to North American and global funds, while actively managed equity funds saw outflows of just under £3bn.

North American equities remained the most popular with investors, with net inflows of £496m, while global equities had inflows of £238m.

However, the IA noted that the high valuations of the Magnificent 7 stocks, which have seen some of the biggest falls in Q1, and the impact of tariffs on US company valuations may mean that investors shift away from making additional allocations to the US over the next quarter.

Meanwhile, mixed asset funds experienced £409m of inflows, the highest level since January 2023, as investors sought diversification in their investments.

The IA global sector was the highest selling sector with net retail sales of £552m, while fixed income inflows continued with net retail sales of £121m.

Government bond funds were the top selling fixed income category in February, with net inflows of £185m.

“It’s clear the start of 2025 is a very different landscape for investors from the end of 2024 when markets rose on the back of the US election victory,” commented IA director, market insight & fund sectors, Miranda Seath.

“The spectre of rising inflation is back. The shift from rhetoric to reality on Trump’s tariffs is set to drive inflation. In the UK, household bills are set to increase substantially in April as the energy price cap ends, water bills rise by double digit percentages and council tax increases. Businesses will also look to cover the cost of the April National Insurance contribution rise.

“Central banks, government and investors will keep a close watch on whether any increase in inflation will be transitory or more persistent. Either way, it is likely to affect interest rates and Central Bank policy in the near term. Rate cuts look set to pause and this will affect equity market performance, while bonds are in a good position if investors pivot to risk off.

“The bigger issue is that uncertainty may lead investors sit on their hands or redeploy capital away from investments to cash savings, which risks poorer financial outcomes over the long term.

“Our recent ISA research shows many cash savers, as well as investors, are saving for their retirement, and it is important that they do not miss out on the benefits of long-term investment due to concerns over short-term volatility.”

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