Passive equity funds suffer first outflows in more than three years

Passive equity funds recorded their first month of net outflows in more than three years in October, suggesting the recent cooling in investor appetite for equities is beginning to extend beyond active strategies, according to data from Calastone.

Investors withdrew a net £44m from passive equity funds during the month, marking their first negative monthly flow since August 2023.

The outflows came as overall equity fund withdrawals climbed to £1.41bn, the ninth-largest monthly outflow on record and the third-largest this year.

The figures indicate investors are becoming increasingly reluctant to add fresh capital to equity markets, rather than actively reducing existing positions.

Equity funds have now experienced net outflows in 16 of the last 17 months, underlining the sustained pressure facing the asset class despite resilient market performance in several regions.

October’s deterioration was driven almost entirely by weaker demand. Buy orders for equity funds fell by £586m compared with September, while sell orders were broadly unchanged, declining by just 0.3%.

“Buyers stepping back did more damage to equity fund flows in October than sellers heading for the exit,” said Edward Glyn, head of global markets at Calastone.

“That distinction reveals a weak appetite to commit new money, rather than a rush to liquidate investments. Even perennially popular passive funds could no longer buck the trend. The general reduction in equity allocations is finally hitting them too.”

Investors dump UK equities as passive funds dominate Q3 flows

The retreat was broad-based across most equity sectors. UK-focused funds suffered the largest withdrawals, losing £815m during the month and taking year-to-date outflows to £5.27bn.

Global equity funds shed £229m, while North American funds recorded outflows of £164m, extending a run of monthly withdrawals that began in August.

Emerging markets were the notable exception. The sector attracted £131m in October and was the only equity category to record inflows over each of the past three months, suggesting some investors continue to seek opportunities outside developed markets.

The data also showed continued pressure on ESG strategies. ESG equity funds lost £754m during October, taking year-to-date outflows to £5.13bn.

As a result, ESG products have accounted for around three-quarters of all equity fund outflows in 2026.

At the same time, investors continued to favour more defensive or income-oriented assets. Money market funds attracted £516m, their strongest inflows since November 2025, while bond funds gathered a further £302m.

Property funds also extended their recent recovery, attracting £127m in October, their strongest monthly inflow since August 2018 and a third consecutive month of positive flows.

Taken together, the figures point to a market where investors are becoming more selective about risk exposure.

Rather than a wholesale flight from equities, October’s data suggests a preference for holding cash, adding to defensive assets and waiting for greater clarity before committing new money to stock markets.