Investors injected a net £1.11 billion into financial markets in March, a significant increase from the £149 million recorded in February, according to data from the fund information company Lipper. This sustained inflow came despite mounting economic uncertainty triggered by the conflict in the Middle East, which has threatened to derail growth and rekindle inflation.
Economic Headwinds Fail to Deter Capital
The resilience of investor appetite is notable given the stark macroeconomic backdrop. US-Israeli strikes on Iran in late February 2026 disrupted energy supplies, sending oil and wholesale gas prices soaring. UK annual inflation rose to a three-month high of 3.3% in March, with petrol prices jumping approximately 10%. The Bank of England, which voted unanimously to hold interest rates at 3.75% in March, now faces market expectations of a rate rise this year, dashing earlier hopes of cuts.
Furthermore, the UK economy is projected to see the sharpest growth slowdown in the G7 this year, with GDP growth forecasts slashed to 0.8%. This followed a lacklustre start to the year with zero growth in January. The conflict also triggered significant market volatility, with the FTSE 100 falling around 6.2% in March after reaching record highs in February.
The Great Strategy Shift: Passive Gains, Active Bleeds
Beneath the headline inflow figure lies a decisive shift in how investors are allocating that capital. The Lipper data reveals a clear preference for passive investment strategies, which saw net inflows of £2.23 billion in March. In stark contrast, actively managed funds suffered net redemptions of £1.12 billion.
This trend was particularly pronounced in equities. While equity funds as a whole saw net outflows of £2.79 billion, this masked a dramatic divergence: active equity funds shed £4.26 billion, while passive equity vehicles attracted £1.47 billion. This suggests investors seeking stock market exposure are increasingly opting for low-cost, index-tracking funds over those where managers attempt to beat the market—a trend reinforced by data showing only 24% of active managers have outperformed a passive alternative over the past decade.
The “flipping between active and passive strategies,” as Lipper describes it, extends to other areas. The fixed income market appears indecisive; March saw £388 million enter active bond funds, but this was more than offset by £404 million leaving passive bond products. This follows a month in February that strongly favoured active-to-passive flows, and a January that showed the reverse, potentially reflecting investor uncertainty in the face of geopolitical tension.
Where the Money Went: Managers and Asset Classes
The tilt toward passive strategies benefitted certain asset managers disproportionately. Perhaps unsurprisingly, Vanguard led year-to-date flows in March, attracting £3.01 billion, primarily driven by £2.52 billion in equity allocations. Royal London followed closely with £2.95 billion of inflows, supported by equity and money market demand, helping its total assets under management reach a record £199 billion. Amundi ranked third with £2.44 billion, while Schroders recorded £2.09 billion, mainly from mixed-asset allocations.
By asset class, mixed-asset funds were the clear winners in March, gathering £2.75 billion, with the vast majority (£2.61 billion) going into active strategies. This aligns with their popularity among UK savers seeking a simple, diversified approach. Conversely, UK-focused equities remained under pressure, with the UK All Companies and UK Smaller Companies sectors seeing outflows of £0.54 billion and £0.35 billion respectively.
Money market funds, seen as a shelter amid volatility and attractive due to the interest rate outlook, attracted £705 million. A notable oddity, per Lipper, was a £0.71 billion inflow into passive Money Market EUR funds—a classification not typically in UK investors’ baskets. Meanwhile, alternatives attracted £928 million, with a strong trend into active strategies.
At the individual sector level, Mixed Asset GBP Aggressive – Global led flows, drawing in £3.04 billion. Equity Europe ex-UK followed, attracting £1.83 billion driven by active demand, while Equity Emerging Markets Global took in £0.55 billion. On the negative side, Equity Global saw the largest redemptions at £2.72 billion.
Commenting on navigating the current climate, Andrew Prosser, Head of Investments at InvestEngine, emphasised a long-term view. “While your portfolio might take some knocks now, these movements become much less relevant over five, ten, or twenty years,” he said. He highlighted the value of diversification across assets and geographies and the importance of aligning one’s portfolio with personal risk tolerance and time horizon.
