Royal London’s leading money market fund has enjoyed inflows almost five times higher than the average seen over the past 15 years as investors seek safe havens amid the conflict in the Middle East and fears of an AI bubble.

UK’s largest mutual life, pensions, and investment manager recorded inflows of £3.1 billion into its short-term money market fund last year to take its asset under management (AUM) over £10 billion. Market volatility in the first two months of the year led to a further acceleration in flows that brought the fund’s assets to almost £10.7 billion.

Investors have been rotating into money market funds as they seek security during a time of high market volatility, with the Vix index, a barometer of American equity market volatility, touching 30 last week, a reading associated with significant market distress.

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Last year, money market funds were popular amid caution over valuations in the artificial intelligence sector and the possible impact of developments in machine learning technologies on incumbent software providers, data firms and publishing businesses.

More recently, these funds, which invest in safe, short-term financial instruments and cash, have enjoyed renewed interest as investors respond to a sell-off in equity markets sparked by the Iran conflict and volatility in the price of commodities and precious metals.

Barry O’Dwyer, group chief executive of Royal London, said investors moving money into the asset manager’s short-term money market fund last year was a “trend we continued to see in the first three months of the year”. The fund had previously had average inflows of £640 million a year for the past 15 years. 

O’Dwyer said: “We’ve seen some investors rotate into money market funds as concern grows about a potential AI-driven market bubble, and the conflict in the Middle East.

“These funds are booming because they offer something rare in today’s environment; competitive returns, daily access to cash and a sense of security when the wider economy feels uncertain. This isn’t about people giving up on investing, it’s about short-term caution.”

Technology funds suffered during a market sell-off in February as a new product release from Anthropic, a major AI developer, prompted investor concerns about a wide range of sectors.

Equity funds were hit with outflows of £927 million, bringing the total withdrawn since June last year to £12.2 billion, according to Calastone, the global funds network. It said specialist technology funds were “notable losers” as they saw net outflows of £162 million, equivalent to a sixth of the total withdrawals.