Bond funds attracted more than £1bn in net inflows during June, making it the third-strongest month on record for fixed income, according to data from Calastone.
The surge reflects a broader rebalancing trend, with investors seeking assets that offer reliable income while reducing exposure to increasingly stretched equity valuations.
Bonds have drawn £2.2bn in new inflows across the first six months of 2026, underlining sustained and growing appetite for fixed income as a portfolio anchor.
Equity funds, by contrast, suffered net outflows of £437m in June, bringing total outflows for the first half of the year to £2.6bn as investor confidence in the asset class weakens.
The Asia-Pacific region recorded the sharpest equity outflows in June, with investors selling £312m of holdings, marking the 38th consecutive month of net outflows from the region.
UK-focused equity funds lost £260m during the month, reversing a slight inflow recorded in May, while global and North American funds managed to avoid losses.
Edward Glyn, head of global markets at Calastone, said: “Bond funds are benefiting from an unusually attractive combination of high income and the prospect of capital gains if interest rates begin to fall.”
Glyn added: “At the same time, geopolitical tensions, an uncertain economic outlook and elevated equity valuations are encouraging investors to rebuild the defensive side of their portfolios.”
Asset managers are sounding louder alarms over concentration risk as AI and technology companies continue to dominate market capitalisation, distorting indexes including the S&P 500.
Passive investors face particular exposure because index funds allocate capital based on market capitalisation, funnelling disproportionate flows into a small number of mega-cap stocks.
Industry figures are urging investors to be aware of the anticipated stock market debuts of OpenAI and Anthropic, following SpaceX’s listing earlier this year, especially for those taking a passive approach.
The tech sector sell-offs last month already demonstrated how vulnerable passive portfolios can be when concentrated positions unwind sharply and simultaneously across major indexes.
Active investing, which allows fund managers and investors to make decisions based on market trends, economic shifts, and corporate performance, offers one route around the concentration trap.
Elsewhere, property fund outflows fell sharply to £6.1m in June, down from £14.8m in May, continuing a broader trend of dwindling losses that began in October 2025.
Despite the improvement and June marking the smallest month of outflows since May 2024, the sector recorded its 25th consecutive month of net losses, reflecting persistent challenges across the housing market.
Glyn noted the property market is not yet at a “decisive turning point,” even as falling interest rate expectations and improving commercial real estate yields draw some buyers back.
Glyn said: “Property funds have been under pressure since higher interest rates reduced the relative appeal of commercial real estate and increased financing costs across the sector.”
He continued: “However, expectations that interest rates are moving lower, together with attractive property yields and signs of stabilisation in commercial real estate valuations, appear to be encouraging buyers back into the market.”
Glyn concluded: “We’re not yet seeing a decisive turning point, but the trend over recent months points to a gradual rebuilding of confidence.”