The aim of any investment is to buy low and sell high. That suggests that investors should consider buying when no-one else wants to, and to sell when everyone can’t get enough. This is where fund flow data can come in. The most popular and least popular sectors can provide some clues on areas to look at, or to avoid.
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The continually unloved UK market
According to the Investment Association, which collates data on inflows and outflows into all UK-listed funds, the least loved sector has been consistent for more than a decade: UK equities. Since 2015, the UK All Companies sector has been the worst selling in all but three years and for every discrete quarter since 2023. The brief exception was in 2019 and 2020, when the Targeted Absolute Return sector took the hit. The UK Equity Income was the least popular option in 2021*.
Following the contrarian path into the UK would have been a poor choice until last year. The UK was cheap, but investors had little interest when domestic politics were volatile and economic growth was weak. However, in 2025, the FTSE 100 dramatically revived. With a return of 25.8%, it outpaced most major markets, including the S&P 500, which only returned 8.4% in sterling terms**.
Are investors returning to the UK?
It appears that this stronger performance may finally be encouraging investors back to the UK market. In November, outflows slowed dramatically, and active UK-focused funds saw positive inflows. Is the UK out of the woods?
Andy Marsh, manager of the Artemis Income fund, says investors have been worried that the UK market may be due for a breather, or that the easy money has been made, but he points out that around three quarters of the capital appreciation for UK companies in the portfolio has come from increases in cash flow and dividends, rather than revaluation. “It still looks very attractive from the perspective of cash flow, dividends and potential for capital appreciation.”
He adds: “The UK stock market continues to be overlooked. It’s one of the largest global stock markets, with 75% of its revenues from overseas. Companies are seeing strong cash flow growth.” It is worth noting that the UK’s strong performance has continued into 2026 and appears to be spreading to the deeply unloved smaller companies.
Andy also believes there is an opportunity for international investors to return to this market in a way they haven’t for the past ten years. He says that while domestic outflows have continued, there have been net inflows into UK equities from international investors: “A theme observed in the latter half of 2024 was the emergence of large US-based investors appearing on the shareholder registers of UK companies and this continued for much of 2025. Such has been the weakness of the dollar over the past year that returns on UK equities for US-based investors have been much higher, with the FTSE All-Share making 33% in dollar terms.”
Global funds fall out of favour
The IA Global sector is less popular, bucking the recent trend of strong inflows. In November, these hit over £1bn*. The global sector is the largest IA sector, with £242bn in assets*. It is home to a mixed bag of niche ETFs, diversified active funds, and specialist options, but it seems likely that its current weakness is in response to investors falling out of love with US mega-caps. The IA North America sector was the second worst performer with outflows of £494.7m*.
Investors are only in the foothills of reappraising the US technology sector and it is too soon to start hunting for bargains. Our view is that AI is still an important technology and moving away from it wholesale may not be the right approach. However, diversifying into other types of global fund could be a way to mitigate some of the volatility associated with it.
One option might be the JOHCM Global Opportunities fund. Manager Ben Leyland is naturally cautious: “The equity risk premium is extremely low. This makes us uncomfortable, although we know from the 2017-21 experience that overvaluation can last a long time.” His approach is not to focus on traditional defensives, such as staples, healthcare, or utilities, but instead to focus on industrials and materials, where he expects to see accelerating growth and improving returns as a result of structural growth in real-world infrastructure investment***. The fund should provide some balance to the dominant AI trade.
What about the more popular funds?
Can more popular funds give any clues as to momentum in the market? In November, fund flows revealed a deeply ‘risk off’ mood in markets, with short-term money market funds – a proxy for cash – taking in £1.28bn*. The other popular areas – mixed bond, strategic bond and UK gilts – also suggest investors want to insulate their portfolios against market volatility.
While not all strategic bonds will be defensive, the Premier Miton Strategic Monthly Income Bond fund is currently taking a low-risk approach, with manager Lloyd Harris focusing on short-dated bonds. He says: “Our core stance for 2026 is simple and disciplined: stay anchored in (short-dated bonds) where the maths works in your favour, maintain a high quality bias in corporate bonds, and let carry and compounding do the heavy lifting.”
While a good strategic bond fund can play a role in building portfolio protection, there are other under-the-radar options. The Targeted Absolute Return sector was also popular and Janus Henderson Absolute Return has historically been a steady and consistent performer in this area. In the last market melt-down in 2022, it fell just 0.7%**, proving its ‘safe haven’ credentials. It may also be worth looking at a fund such as FTF ClearBridge Global Infrastructure Income, where the income makes it naturally defensive, and it is tapped into global infrastructure spending.
Fund flows cannot give a definitive answer on where to invest or to avoid. However, they can provide clues on what other investors are thinking, where the bargains might be found, or where sentiment is changing.
