Defensive and Record-High Cash-Like Funds Top Sales as Investors Boost ISA Contributions

Why It Matters

The flow pattern signals heightened risk aversion and a preference for liquidity, pressuring active managers while boosting fee‑generating passive products and tax‑advantaged ISA platforms.

Key Takeaways

• Money‑market funds attracted a record £2 bn (~$2.5 bn) in March.
• Mixed‑asset and absolute‑return funds together drew over £1.5 bn (~$1.9 bn).
• Equity and bond funds suffered net outflows exceeding £1.4 bn (~$1.8 bn).
• Tracker funds outperformed active funds, with £915 m (~$1.2 bn) inflows.
• ISA contributions hit £1.4 bn (~$1.8 bn), the strongest start since 2021.

Pulse Analysis

March’s fund‑flow data reveal a pronounced tilt toward cash‑like assets as investors seek capital protection amid geopolitical turbulence. The Investment Association reported a record £2 bn (about $2.5 bn) net inflow into short‑term money‑market funds, the sector’s strongest month on record. This surge reflects a desire for liquidity that still offers modest yields above traditional savings accounts, especially as the ISA season injected another £1.4 bn (~$1.8 bn) of tax‑efficient cash. The combination of heightened uncertainty and the appeal of tax‑advantaged wrappers has pushed diversified, low‑risk vehicles to the forefront of retail portfolios.

The defensive bias also widened the gap between passive and active managers. Tracker funds attracted £915 m (~$1.2 bn) in March, lifting their industry share to 24.9% of total assets, while active funds slumped to £448 m (~$570 m) after a £1.6 bn inflow in February. The outflow from active equity funds, which rose to £2.1 bn (~$2.7 bn), underscores fee pressure and the challenge of delivering alpha in a risk‑averse environment. For asset managers, the trend accelerates the shift toward low‑cost index products and forces active houses to reassess strategy and cost structures.

Equity and bond markets felt the pull‑back, with net outflows of £1.3 bn (~$1.65 bn) and £97 m (~$123 m) respectively, and regional flows turning negative in the UK, North America, Asia and Japan. By contrast, Global Emerging Market equities recorded a fourth straight month of inflows, pulling in £317 m (~$403 m) as a weakening US dollar improves debt‑servicing costs and commodity pricing for those economies. The pattern suggests investors are reallocating toward diversified, lower‑volatility assets while still seeking growth exposure in markets less correlated with the dollar‑strengthened West. Continued uncertainty could keep money‑market and mixed‑asset funds at the top of the flow hierarchy.