Despite the FTSE 100 delivering its strongest annual return in 16 years, UK equity funds suffered another year of heavy outflows in 2025. Retail investors withdrew a net £11.1 billion—marking the tenth consecutive year of net redemptions, according to the Investment Association (IA). Over the past decade, total outflows have now reached £71 billion.
The FTSE 100 surged 21.5% in 2025, its biggest gain since 2009. It hit multiple record highs and even outperformed the S&P 500. Yet this rally failed to convince UK savers to stay invested. In fact, 2025’s outflows were only slightly lower than the £13.6 billion in 2023 and £12.7 billion in 2024.
Chancellor Rachel Reeves tried to revive interest in domestic equities, declaring “the first signs of a new golden age for the City.” But her efforts did not stem the tide. Investors continued to pull money out of UK equity funds.
Laith Khalaf, head of investment analysis at AJ Bell, called it “a dismal decade” for these funds. He pointed to two key reasons. First, global investors flocked to U.S. tech stocks, drawn by Silicon Valley’s growth. Second, many UK DIY investors now prefer buying individual shares directly rather than paying fund managers.
Jason Hollands, managing director at Evelyn Partners, added another factor: tax uncertainty. In the two months before November’s Budget, speculation about potential changes led many to sell UK stocks early.
The retreat from UK equities was part of a broader market pullback. Overall, investors withdrew £16.8 billion from equity funds in 2025—more than in 2024. Even U.S. equity funds, once popular, saw outflows in the second half of the year due to AI valuation concerns and geopolitical risks.
Khalaf believes the exodus from UK equity funds is structural—and likely to continue. He explained that global portfolios now benchmark against indices like the MSCI World, where the UK accounts for just under 4%. Yet UK-focused funds still hold £148 billion in assets, making them the second-largest category after global funds. “Investors remain heavily overweight UK stocks compared to global benchmarks,” he said. “Unwinding that position may take years.”
Instead, UK savers moved into safer assets. Money market funds attracted record inflows of £6.9 billion in 2025. High interest rates made cash-like instruments more appealing, especially amid cost-of-living pressures.
A larger shift also accelerated: the move from active to passive investing. In 2025 alone, investors pulled £15.1 billion from actively managed funds while adding £12.8 billion to passive ones. Over the past four years, active funds have lost £120.9 billion. “Things are still abysmal out there for active fund managers,” Khalaf noted.
This trend has boosted demand for exchange-traded funds (ETFs), which are typically cheaper and more transparent. Although country-specific ETF flows aren’t tracked, European ETFs—including those in the UK—saw record net inflows of $397 billion in 2025, pushing total assets to $3.2 trillion, per consultancy ETFGI. “ETFs have grown in popularity,” Hollands said. “They’ve seen the most innovation in new launches.”
Ironically, strong market returns lifted total mutual fund assets from £1.49 trillion to £1.62 trillion in 2025—despite the outflows.
Looking ahead, Hollands sees hope for 2026. As interest rates fall, cash savings will become less attractive. That could ease pressure on household budgets and encourage investors to return to riskier assets. If so, UK equity funds might finally catch a break—but only if they can prove their long-term value in an increasingly global and passive investment world.
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