Interest in tracker funds and property funds slumped in February as absolute return and equity income products cemented their status as nervous investors’ products of choice.
UK investment funds experienced net outflows of £399m last month, following on from the £463m of net outflows in January which marked the worst sales since October 2008, according to latest figures.
The Investment Association (IA) had attributed January’s figures to “risk on, risk off” market sentiment, which led to increased volatility and pushed investors to reduce their holdings.
But instead of viewing market dips as a buying opportunity, sentiment among investors remained poor last month - despite the beginnings of a rally emerging in the final weeks.
Notably, net sales of tracker funds also dropped sharply in February, down from £543m in January to just £91m.
This represents the worst month for tracker fund sales since the £83m in sales recorded in March 2013, and adds credence to the suggestion that the products’ ability to withstand January’s risk-off environment was largely due to investors making shorter-term tactical allocations.
Property funds also suffered further, having recorded their first net outflows for a number of years in January. The £29m in net outflows seen in 2015’s opening month was followed by a net £119m in redemptions in February.
Guy Sears, interim chief executive of the IA, said: “Caution was still evident amongst retail investors in February as they reduced their holdings in investment funds amid volatile markets.
“Outflows were seen across a range of asset classes, but we did see investor appetite for absolute return and equity income products.”
Targeted Absolute Return was the best-selling IA sector with net retail sales of £243m last month, up from £224m in January, while UK Equity Income saw net sales rise by 50 per cent to £214m and global income sales also returned to positive territory.
Fixed income was the most unloved asset class with a net retail outflow of £265m, with the worst falls experienced by strategic bond funds, which saw outflows of £199m - largely due to continued redemptions from the M&G Optimal Income fund, Morningstar estimates suggest.
A total of £196m was withdrawn from equity funds last month, the worst of which was the £218m in outflows recorded by UK All Companies funds.
Europe ex-UK and US equity funds experienced the most drastic changes in sentiment. Sales of Europe ex-UK funds saw inflows of £250m in January but outflows of £27m in February, and it was a similar story for North America funds, which enjoyed £228m in net inflows in January but £67m of outflows last month.