UK equity funds saw net inflows for the first time since April 2017 in May as investors poured £532m into the unloved asset class.
The "reversal of fortunes" for UK equity funds comes amid weaker equity fund sales, which saw combined outflows of £78m, as fixed income attracted the most inflows of any asset class for the third month in a row, according to the latest Investment Association (IA) figures.
Funds in the IA All Companies sector saw overall inflows of £266m for the month, despite large reported outflows from the Woodford Equity Income fund, which was gated on 3 June. UK Equity Income funds saw the strongest flows for the country at £316m, while UK Smaller Companies funds bucked the trend with net outflows of £49m.
Managing director at Tilney Investment Management Jason Hollands described the inflows as a "potentially significant development in buying behaviour by private investors", and surprising "given both the heightened prospect of the UK leaving the EU without a deal by the end of the year and also the significant outflows seen from the embittered Woodford Equity Income fund during May".
He added: "Time will tell whether the surge in UK equity fund net sales is partially down to a blip in the timing of reported sales and purchases, or the start of a more durable trend where investors have begun to recognise the value opportunities available in the UK equity market which is trading at a discount to other developed markets."
Negative on Eurozone
By contrast, investors are less positive on the eurozone with investors pulling more than £500m from European equity funds overall.
Holland said this was "unsurprising given weak growth…looming trade tensions with the US and the spat between European institutions and the Italian government over its fiscal programme".
He added: "With a weak banking sector, high exposure to export markets and already very low interest rates, the eurozone looks poorly equipped to deal with the next economic downturn whenever it might come."
Meanwhile, fixed income funds attracted £711m overall, with the lion's share going to £ Strategic Bond funds followed by Specialist bond funds - the second highest selling sector overall with £386m of net inflows.
£ Strategic Bond was surpassed by Global equity funds with net retail sales of £562m, but edged past the Mixed Investment 40-85% Shares sector, which in third place saw net retail sales of £367m.
Commenting on the latest figures, IA chief executive Chris Cummings said: "UK equity funds saw a reversal of fortune in May, with savers placing £532m into these funds in the first net inflows since April 2017.
"However, overall equity sales remain weak, with significant outflows from European equity funds and also Asian equity funds, in particular Japan, as the ripple effect of trade tensions between the US and China started to be felt.
"In contrast, mixed asset and bond funds attracted strong inflows."