Fund outflows were “slashed” in 2024 amid cautious optimism among investors, with funds under management rising by 6 per cent year-on-year to end 2024 at £1,509bn, data from the Investment Association (IA) has shown.

There were net retail outflows of £1.6bn last year, compared to outflows of £26.9bn and £24.3bn in 2022 and 2023 respectively.

The IA said that this year’s figures demonstrated a cautious return to investor optimism, aided by falling inflation, rate cuts, and stronger equity market performance, especially in the US.

Index tracking funds took in a record £28bn during the year, exceeding the previous record inflow of £18.4bn seen in 2020, with index trackers now accounting for a quarter of funds under management.

At the other end of the spectrum, active funds saw £29bn of outflows last year, bringing the three-year total for retail outflows to £105bn.

Equity funds continued to experience overall outflows, although the £5.7bn outflows were reduced from the £22.4bn outflow in 2023.

The IA noted that the overall equity fund outflow was driven by active equity funds, as equity index trackers took in £20.6bn.

UK equity funds saw £13.1bn in outflows, down from £13.6bn in 2023, while funds investing in North American equities saw inflows of £3.3bn in 2024.

Fixed income funds experiencing inflows of £3.2bn, up from £720m in 2023, with investors increasingly opting for corporate bond funds, which saw net inflows of £4.6bn.

Mixed asset funds had outflows of £2.7bn, a slight reduction compared to £4bn of outflows in 2023, while responsible investment funds saw their outflows rising from £3bn in 2023 to £4.7bn in 2024.

“Investor confidence has improved significantly in 2024, after the high outflows of the previous two years,” commented IA director, market insight & fund sectors, Miranda Seath.

“Tracker funds were firmly in favour with investors placing £28bn into these funds. Although anticipated tax changes in the Budget had a significant impact on net retail sales in September and October, with investors taking out £9.4bn, these outflows have not persisted.

“There has been a return to robust overall inflows in the last two months of the year, with a £2.3bn inflow in December, the second highest monthly inflow after April in 2024.

“At the end of 2024, flows to US equities were bolstered by the strong response of the US market to Trump’s US election victory. Investors viewed a Trump presidency as broadly positive news for the performance of US companies and the large US listed technology stocks.

“This has driven sales to the IA’s North America and North America Smaller Companies sectors. Outflows from UK equity sectors also eased in November and December – the question is whether we'll reach the tipping point back into inflows in 2025.

“Looking ahead, the outlook for UK equities is relatively good, UK stocks are seen as good value, the UK political agenda is clear and the pro-growth agenda set by the government is a positive statement of intent.

“While there may be significant opportunities for investors in 2025, the febrile global geo-political environment could introduce more volatility.

“Whilst returns may be choppier across equity markets around the world, it could bring some interesting opportunities for investment managers to drive performance.

“With such distinct short and long-term structural changes witnessed across global markets in recent months, what will remain true in 2025 is that markets won’t stand still.

“The key message therefore to investors is to stay invested through periods of volatility and to think long-term. The UK investment management sector is critical to support this, by empowering investors to access capital markets and improve their financial futures.”

Also commenting on the data, AJ Bell head of investment analysis, Laith Khalaf, said: “Index trackers absolutely smashed through previous records in 2024, taking in £28bn from retail investors.

“What’s particularly impressive is this was done against a backdrop of weak overall fund inflows, with total retail sales registering a modestly negative £1.6bn outflow.

“If there’s not much lunch to go around, but you’re still gobbling up money like tracker funds are, that means you’re eating someone else’s. The result? Active funds saw £29bn of outflows in 2024.

“That wasn’t a record because in 2023 active funds saw £38bn of retail outflows, as they did in 2022. So, over the last three years active funds have waved goodbye £105bn of retail assets. Ouch, to say the least.”

---