Investors poured a record £2 billion into short-term money market funds in March, the strongest monthly intake ever recorded for the sector, as geopolitical turmoil and surging oil prices drove a defensive scramble for capital protection and liquidity.
The data, published by the Investment Association (IA), shows that the IA Short Term Money Market sector was by far the best-selling category last month. The inflows brought total UK money market fund assets to £279 billion by the end of March. Investors are parking cash in these funds because they combine the security of low-risk, short-dated debt — government bonds or commercial paper with maturities of 12 months or less — with slightly higher returns than ordinary bank savings, while retaining the flexibility to withdraw without locking money away for long periods.
The surge reflects the febrile market environment that followed coordinated US-Israeli strikes on Iran at the end of February. Brent crude prices jumped sharply, with West Texas Intermediate crude topping $100 a barrel for the first time since 2022. The disruption to global energy supply — the Strait of Hormuz became largely impassable — reignited stagflation fears and prompted central banks to reassess interest rate policy. The Office for Budget Responsibility estimated the conflict would add one percentage point to UK inflation in 2026. Against that backdrop, the Bank of England was considered unlikely to cut rates, making money market funds an attractive holding for investors seeking yield without unwanted risk exposure.
Diversified strategies draw steady demand
Alongside the flight to cash-like assets, investors continued to favour diversified strategies that allow them to stay in the market while spreading risk. Mixed asset funds took in just over £1 billion in March. Targeted Absolute Return funds attracted net retail inflows of £514.4 million, and the Mixed Investment 40-85% Shares sector gathered £154 million. Volatility Managed strategies posted £138 million in inflows.
Miranda Seath, director of market insight and fund sectors at the IA, said: “Looking ahead, investors will continue to monitor geopolitical developments and their impact on the macroeconomic environment. While short-term volatility has led to more cautious positioning, this month’s data suggests that many investors are holding strong and remain committed to their long-term plans, reinforcing the importance of diversification and a disciplined approach to investing.”
The broader picture, however, showed a clear retreat from riskier exposures. Equity funds suffered net outflows of £1.3 billion in March, accelerating sharply from £445 million in February. Bond funds, after four consecutive months of positive inflows, recorded net redemptions of £966 million.
Regional shifts reflect loss of confidence in US and UK
At regional level, only European and Global equity sectors recorded positive inflows: £29 million and £135 million respectively. North America saw a dramatic reversal. The region had drawn £417 million in February but suffered £240 million of outflows in March. The UK also endured net withdrawals of £580 million, despite relatively strong performance in parts of the market. According to research by the IA and Opinium, confidence in UK companies fell by ten percentage points between the start of the Iran war on 28 February and April.
Asia and Japan saw more modest outflows of £161 million and £86 million respectively. Global Emerging Market equities, by contrast, attracted positive demand for the fourth consecutive month, taking in £317 million. These economies benefited from a weakening US dollar, which typically has a strong inverse correlation with emerging markets. Many emerging-market nations borrow in dollars, so a weaker dollar reduces the cost of servicing that debt. In addition, many are large commodity producers — oil, gas, iron, coffee — whose prices are set in dollars; a cheaper dollar makes their exports more affordable globally. Yet the headline index painted a bleaker picture: the MSCI Emerging Markets Index fell 13.0% in US dollar terms in March, its steepest monthly decline since March 2020, with technology-heavy markets such as South Korea and Taiwan suffering particularly heavy losses.
Tracker funds extend lead over active managers
The defensive mood and reluctance to make strong directional bets were reflected in the continued dominance of passive funds. Tracker funds recorded net retail inflows of £915 million in March, marginally above February’s £890 million. Their total assets under management reached £402 billion, representing 24.9% of all industry funds. Active funds, by contrast, took in only £448 million — a steep drop from the £1.6 billion they gathered in February. Active equity outflows increased from £1.3 billion to £2.1 billion over the same period.
Within fixed income, only the IA Mixed Bond and Global Inflation Linked categories attracted inflows. UK Gilts reported £108 million of outflows and broader Government Bonds saw £124 million exit. The pressure on government debt was compounded by a surge in gilt yields: the ten-year gilt yield hit its highest level since 2008 as markets repriced the inflation outlook amid expectations that the Bank of England would delay rate cuts.
The ISA season provided a supportive backdrop, with £1.4 billion invested in March. Seath described it as the most robust start to an ISA season since 2021, adding: “This underlines the importance of tax-efficient investing as a consistent driver of flows, even during periods of heightened uncertainty.” The 2026/27 tax year — which began on 6 April — is the final opportunity for savers under 65 to contribute the full £20,000 to a cash ISA before the limit is cut to £12,000 from the 2027/28 tax year, a change intended to encourage younger people to invest in the stock market.
The broader economic picture reinforced the cautious tone. The UK economy stagnated in January 2026, even before the Iran conflict escalated. Inflation remained stubbornly above the Bank of England’s 2% target, at 3% in the 12 months to February. The British Chambers of Commerce described the UK as being in a “low-growth pattern” and downgraded GDP forecasts. Consumer confidence also weakened: the University of Michigan’s sentiment survey found that the Iran war was influencing confidence in financial futures, with the reading falling from 56.6 in February to 55.5 in March.
