Are fixed income investors backing the wrong horse?

Figures released by Skandia last week showed investors ploughing money into UK fixed interest; the sector accounted for 26 per cent of sales. This backs up figures from the Investment Management Association which show bonds were the highest selling sector in December.

Are private investors about to get it wrong again as ‘Isa season’ gathers pace?

Figures released by Skandia last week showed investors ploughing money into UK fixed interest – the sector accounted for 26 per cent of sales.

This backs up figures from the Investment Management Association, which show bonds were the highest-selling sector in December.

Bonds accounted for £634m of net retail sales in December, the highest since October 2010. Meanwhile equity funds experienced a net outflow for the fourth consecutive month.

It is easy to see how investors have become disillusioned. The FTSE 100, upon which so much media attention is focused, fell by 5.6 per cent last year wiping more than £90bn off the value of the biggest companies.

It is still trading at levels first reached in the 1990s.

But since the start of the year, it has surged from its 30 December close of 5572 to more than 5880 by the middle of last week.

More significantly it is up almost 20 per cent from its low of 4935 on August 19.

Stock market historian David Schwartz has said in 82 per cent of previous years when the stock market rose in January, shares tended to rise in the following 11 months.

I am not sure what we should read into that, but there is a definite risk of investors missing the boat by choosing the wrong asset class again.

Not all have given up on equities. The next biggest choice was equity income with 18 per cent.

And income is, of course, where the returns have been for many equity investors.

Invesco Perpetual, at 4.32 per cent, is paying more than savings accounts.

And while many lost money on the stock market last year, Neil Woodford made 8.6 per cent gains for his investors.

The investment record books are full of investors getting their timing wrong and building a portfolio based on disappointment. Property and technology are the obvious examples but there are plenty more.

While some are making these decisions on their own, many are being guided by professional advisers. I am not having a go here. I make as many bad decisions as the next person. But I do think the dramatic movement in share prices in the past year strengthens the case for regular monthly investing. And it makes an equally strong case against putting a lump-sum into one asset class just once a year in a so-called Isa season.

Tarnished image

The retail distribution review cannot come soon enough to bolster the reputation of the financial industry. Better qualifications, clearer definitions of who is selling what, how they are selling it and what they charge can only increase consumer confidence.