Investors remained defensive during 2025, amid uncertainty around geopolitics, tax policy, market concentration and potential volatility.
Data from the Investment Association shows that there was a net outflow of funds, although this held steady at around £2.3bn, compared to the previous year. It added that amid this uncertainty investors were increasingly looking at more diversified strategies.
Although the data shows outflows were unchanged from 2024, the IA data shows there was a stronger finish to the year, with £2bn inflows in December. The IA says this sentiment reflected a year marked by shifting geopolitical tensions, pre-Budget speculation and growing unease over the dominance of large-cap US technology stocks.
Against this backdrop, investors favoured money market funds, with this asset class recording £6.9bn of inflows in 2025 — the highest annual total on record. The IA says this shows that both investors and advisers favoured liquidity and capital preservation while adopting a ‘wait and see’ approach.
The IA said short-term money market funds were the best-selling sector of the year, leading sales in every quarter after Q1.
Mixed asset funds also attracted consistent inflows, taking £4.5bn over the year, while fixed income funds recorded £1.1bn of net inflows as investors diversified away from equities.
In contrast, equity funds suffered £16.8bn of outflows as concerns mounted over stretched valuations, particularly in US markets. North American and global equity strategies were hardest hit, while European equities saw modest inflows as investors sought broader diversification.
Despite the caution, markets proved resilient. Funds under management rose 9 per cent over the year to £1.62trn, up from £1.49trn at the end of 2024, reflecting strong market performance rather than fresh retail investment.
The IA said that this flow of money across the year remained uneven. Heavy redemptions in Q1 were followed by £4.7bn of inflows in Q2 — the only quarter to record net inflows. It says this was driven by the annual Isa season and opportunistic buying following market volatility. Outflows resumed in the second half as speculation around tax changes and fears of an equity market correction weighed on sentiment,.
Miranda Seath, director of market insight and fund sectors at the Investment Association, says: “Last yer saw a small outflow from UK retail funds. Through extended periods of geopolitical and market uncertainty, investors were cautious.
“In 2025, investors rotated away from US and global equity strategies and into diversified, lower‑risk asset classes, such as money market, mixed asset and mixed bond funds. We end the year on a positive note, seeing £2bn flow in through December across fixed income and mixed asset as equity outflows softened substantially.
“Looking forward, we expect 2026 to see retail fund flows to continue to build back. Demand for diversified, lower risk allocations looks set to continue in a climate of persisting geopolitical uncertainty, evolving monetary policy in the UK and the US and ongoing concerns around high US equity valuations. At the same time, investing is a long-term game.
“The Leeds Reforms provide a once in a generation framework to bring more UK adults into investing: the stage is set to drive an increase in retail investment across the UK.”
