Funds investing in equities were hit the hardest last month in terms of outflows, despite the asset class topping the list of best performing sectors.
Data from research house Thomson Reuters Lipper revealed equity funds lost $19.4bn (£14.9bn) in July, and in fact was the sector to suffer the most all year round, as outflows reached nearly $111bn (£85.2bn) for the year-to-date.
But the equity sector rallied last month, returning an average of 4.6 per cent.
Figures from research firm ETFGI, also found the amount of new money going into equity ETFs had plunged by 85 per cent.
Most of the net new money for July was attracted by bond funds, which accounted for $77.6bn (£59.6bn), and in fact this seems to be the trend for the whole year, as investors ploughed $279.3bn (£214.4bn) into the asset class.
The alternative sector also did well in terms of performance, delivering 4.3 per cent according the the Thomson Reuters data, while mixed-asset funds came in third, returning 2.5 per cent on average.
Commodity funds were at the bottom of the pile, losing 1.3 per cent in July.
Real estate funds, which have had a tumultuous couple of months after falling victim to the Brexit vote, were second from the bottom, returning just 0.2 per cent.
Bond funds fought with the multi-asset sector for second place on the best performing list over the past 12 months, returning 7.2 per cent.
Both sectors were outpaced by commodity funds, however, which delivered a return of 12.1 per cent over the past 12 months.
Markets have roared ahead over the past month with no real appreciation of any downside risk Ben YearsleyBen Yearsley, investment director at the Wealth Club, said the equity outflows were down to two factors: reducing risk and profit taking.
“Markets have roared ahead over the past month with no real appreciation of any downside risk.
“This has been fuelled even further this month by the resumption of QE in the UK and the base rate cut pushing markets to 12-month highs.”
He said sterling investors have had a “double whammy” due to rising markets and falling currency, prompting profit taking in some areas, while also reducing risk.
“The problem for many is there aren’t many places to reinvest, as most assets - including bonds, equities and commodities - have gone up this year.”
Scott Gallacher, chartered financial planner at Rowley Turton, pointed to a claim by research company Dalbar which said the average investor tends to exit funds at almost exactly the wrong time, therefore missing out on the best returns.
“When it comes to the markets, the natural inclination is to head for apparent safety,” he said, adding the Brexit vote is one of many unforeseen shocks that scare investors.
He added: “Investors tend to make, or save, money by simply sitting tight with a diversified portfolio rather than panicky and selling.”
katherine.denham@ft.com
