Evidence from the UK and other locations confirmed what readers might have expected: the latest variant of COVID prompted investors and intermediaries to withdraw risk, both in traditional funds and hedge funds.

A snapshot of the buying and selling behaviour of investors in the UK shows that investors quickly pulled money out of equity funds in late November when news of the new COVID variant, Omicron, emerged. More broadly, however, there were inflows during the course of November, although analysis of this data suggests rising risk aversion. Hedge fund industry data also shows a hit from Omicron.

Data from funds network platform Calastone shows that investors sold £83 million ($109.9 million) of equity fund holdings on Friday 26 November and Monday 29 November. The overall volume of transactions leapt by 60 per cent between those days.

Despite the large outflows at the end of the month, equity funds saw inflows totalling a net £528 million in November, Calastone said, albeit one third of the average for the last 12 months. 

Calastone said the slip in the pace of inflows points to investors becoming more risk-averse. For example, November was the worst month on Calastone’s record for US and European equity funds, with a net outflow of £395 million and £534 million respectively. Outflows from UK-focused equity funds reached £464 million, the sixth worst month on record and marked the sixth consecutive month of net selling. 

Wariness of risk is highlighted by a sharp increase in inflows to safe-haven money-market funds. These have suffered outflows in 10 of the last 12 months, but in November, investors added £108 million – a modest move, “but indicative of the change in mood,” Calastone said.

“COVID-19 continues to be a key driver of both market sentiment, and fund flows. The spasm at the end of the month that saw a sudden rush for the exits and a spike in trading volumes was a clear reaction to Omicron’s discovery, though the selling was measured, rather than a rout,” Edward Glyn, head of global markets at Calastone, said.

Figures issued by Hedge Fund Research, the Chicago-based firm tracking the industry, showed that in November funds suffered the largest single-month decline since March 2020. The investable HFRI 500 Fund Weighted Composite Index fell -1.6 per cent, reversing the prior month’s advance. The HFRI Fund Weighted Composite Index® (FWC) fell 2.2 per cent.

Economists are trying to work out the impact of the new variant. For example, a 7 December note from Goldman Sachs said: “The Omicron variant is still highly uncertain, and our economists outline a downside scenario suggesting a hit of 2.5pp to global GDP growth in Q1 2022.”