As investor withdrawals persist, the most popular fund sectors of 2025

Although fund inflows had yet another challenging year, there are indications that investors are making a comeback to the financial markets

Even though industry data indicates that withdrawals are declining, investors were still wary of investing in financial markets in 2025.

Due to concerns about Trump tariffs, geopolitical unrest, the US technology bubble, and the UK Autumn Budget, last year was a turbulent time for investors.

According to Investment Association (IA) data, net retail fund outflows in 2025 were £2.03 billion, which was equal to 2024. This came after inflows in December of that year increased by £2.0 billion.

While money market funds saw record inflows and were the most popular among do-it-yourself investors, UK equity funds have seen outflows for ten years.

Miranda Seath, the IA's director of fund sectors and market insight, stated: "There was a minor withdrawal from UK retail funds in 2025. Investor caution persisted during protracted periods of market and geopolitical uncertainty. A shift away from US and international equity strategies and toward diversified, lower-risk asset classes like money market, mixed asset, and mixed bond funds occurred in 2025.

These are the fund categories that investors will be most interested in in 2025.

Funds for equity.

Equity funds saw investors withdraw £16.8 billion in 2025.

This was attributed to caution regarding excessive exposure to large-cap US tech stocks as there was growing conjecture that their valuation might be impacted by an artificial intelligence (AI) bubble.

Global equity funds, many of which have substantial exposure to the biggest US tech companies, saw a -4.8% year-over-year flow out, while North American stocks saw 2 billion redemptions in the second half of the year.

European equity funds saw inflows of 761 million, which was a slight benefit of this sentiment.

In the meantime, UK equity outflows reached their highest level since 2021, at 11.1 billion.

The head of investment analysis at AJ Bell, Laith Khalaf, stated that the bright lights of Silicon Valley are drawing money to the other side of the Atlantic, which explains part of the UK's performance.

He went on to say that do-it-yourself investors might feel more at ease making individual stock investments in their home market, which would reduce the need for a fund manager to handle this for them.

This is in spite of the fact that last year saw record highs for the UK stock market, and specifically the FTSE 100.

"It doesn't appear that the UK stock market's impressive 2025 performance has stopped the trend," Khalaf continued. Outflows of 11.1 billion dollars speak for themselves and indicate that foreign buyers, not UK fund investors, were a major factor in the domestic stock market's surge.

There won't be many recently qualified investment managers hoping to land a position on a UK equity desk, or many fund groups looking to hire them, if that volume of outflows occurs during a year of robust performance. The move away from UK equity funds will only be strengthened by that.

Monetary market funds.

The IA stated that money market and mixed asset funds were the most popular asset classes of the year, drawing inflows of 6 percent and 4 percent, respectively.

It indicates that in the face of increased geopolitical and policy uncertainty, investors placed a higher priority on stability and diversification.

The best-selling industry in 2025 was short-term money market funds, which saw inflows of 6.1 billion dollars.

According to the IA, money market funds were a helpful short-term, liquid option for many investors managing their allocation strategies as they awaited market movements after tariffs were introduced.

Nonetheless, we have witnessed inflows for ten of the twelve months of 2025 as a result of the increased use of defensive positions brought on by ongoing uncertainty.

Funds with a fixed income.

As investors became defensive, fixed income funds also gained popularity, recording inflows of £11 billion over the course of the year.

However, this was a decrease from 3point 6 billion in 2024.

With 1.2 billion in net inflows during the second half of the year, mixed bond funds were the most popular.

Funds that are active as opposed to passive.

As tech and AI stocks continue to drive up global indices, it was a challenging year for active funds.

Tracker funds saw inflows of 12.8 billion in 2025, down from a record 27.6 billion in 2024, as investors took advantage of this.

In the meantime, withdrawals from actively managed funds decreased to 15 P1 billion from 29 P9 billion in 2024.

"Passive funds are easier, less expensive, and have been doing better," Khalaf continued. Only 24% of active managers have outperformed a passive alternative in the last ten years, according to our most recent Manager versus Machine report.

Investors who make investments on behalf of others are also drawn to index trackers. It is not a pleasant task for financial advisers and pension scheme managers to explain why an active fund they have selected has underperformed. An index tracker's value decline can be easily ascribed to Mr. Market. As a result, investing in passive funds eliminates a substantial amount of career risk at a reduced cost.

In 2026, where to invest?

Seath is optimistic about the recovery of retail fund flows in 2026.

"In an environment of ongoing geopolitical uncertainty, changing monetary policy in the US and the UK, and persistent concerns about high US equity valuations, the demand for diversified, lower risk allocations appears set to continue," she said.

Nevertheless, investing is a long-term endeavor. With the Leeds Reforms, a once-in-a-generation framework for encouraging more UK adults to invest, retail investment is expected to rise nationwide.