Aggregate market returns and UK unit trust net acquisitions

Recent US research has focused upon the linkages between net mutual fund flows and their impact upon aggregate equity market returns. If a positive feedback relationship exists between investment flows and stock returns then there also exists the possibility that a market downturn or crash will be exacerbated by corresponding net outflows as mutual fund investors withdraw funds, forcing equity prices down further and thus creating a vicious circle. Using data from the UK we analyse the relationship between aggregate equity market returns and the net flows into UK unit trusts. We also undertake a similar exercise using UK bond market data. We trace our failure to identify a positive feedback relationship to the structure of the UK's unit trust industry. The fee structure, the relatively low minimum lump sum values, and the availability of regular savings unit trusts all combine to bring about a very low turnover of unit trust units in the UK.