Flows into UK-domiciled funds suffered their worst month since October 2016 last month, according to global funds transaction network Calastone, as concerns over the strength of the global economy caused increasingly bearish sentiment.
According to the firm's Fund Flow Index (FFI), net inflows into UK-domiciled funds dropped to just £39.8m, marking a 99.3% fall from December 2017, while the FFI fell to 50.1, its lowest reading since October 2016.
The Calastone FFI is a monthly report that measures investor sentiment for UK investors. It shows the net inflow and outflow of capital to and from open-ended investment funds relative to the total value of units bought and sold in those funds. A score of 50 means inflows equal outflows.
December's poor flows meant Q4 was the weakest quarter for UK funds since Q2 2016, recording total net inflows of £3.1bn.
Meanwhile, for 2018 overall, inflows were a third lower year-on-year as investors withdrew from the market following a volatile H2.
In particular, property funds were impacted the most with the FFI Real Estate falling to just 27.1, the second weakest reading on record with outflows hitting £557m in Q4.
Fixed income funds were also in the red with £218m outflows in December, making Q4 2018 the weakest quarter on record for the FFI Bonds sector.
Across equity funds, Europe was affected the most by the selling in December with £257m outflows, while global funds posted inflows £249m.
Mixed asset funds saw net inflows of £704m, however this was the second weakest month in two years for this asset class, with only November being worse.
Edward Glyn, head of global markets, commented: "December rounded off a difficult year for some of the UK fund management industry, as increasingly bearish sentiment dampened investors' enthusiasm to add to their fund holdings.
"Without the ballast of mixed asset funds to steady the ship, the ride would have been much rockier. Net flows into pure bonds funds and pure equity funds are more than twice as volatile as those into mixed assets over the long term, so even though mixed asset funds saw lower inflows than usual, they nevertheless enjoy a structural advantage compared to other asset classes."
He continued: "As 2019 gets underway, investors are faced with rising global risks. The US yield curve inverted in early December for the first time in a decade. This is a key indicator associated with a looming recession and is a very negative signal for investors.
"Meanwhile, wobbles in the eurozone economy are hitting sentiments hard around European assets, while in the UK, investors have to deal with the added uncertainty of Brexit and its difficult path through the parliamentary maze. Fear may be trumping greed at present, but investors are not getting excitable."
The firm launched the FFI in November with a report looking at the past four years of activity in the UK open-ended investment funds market.