InvestmentsAug 25 2016

Retail investors pull another £1bn from funds in July

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Retail investors pull another £1bn from funds in July

UK retail investors added to pressue on the fund management sector pulling more than £1bn out of vehicles in July as equity and property woes escalated.

Despite July’s outflows marking the third consecutive month of negative sales, combined funds under management rose £40bn to hit a record high of £989bn, according to the Investment Association (IA).

The sales figures gave a stronger indication of how significantly investors were spooked by the UK’s decision to leave the EU. Many continued to avoid equity and property assets, instead favouring perceived stability in areas such as fixed income.

Equity funds suffered the most with £2.2bn of net outflows, marginally down on the £2.8bn of outflows seen in June, however. The UK All Companies sector experienced the most outflows of any grouping with £917m, followed by Europe excluding UK at £778m. Only five of the 19 equities sectors posted net inflows.

A tormentous period for property funds also continued as July saw £792m of net outflows, however, this was almost half the £1.5bn seen in June – potentially contributed to by the trading suspensions witnessed in the month and the final days of June.

The combined £3bn of net outflows from equities and property were significantly offset by fixed income, however. The asset class posted £1.1bn of new sales – more than combined amount in the previous six months and the highest since August 2010’s £1.3bn figure.

The asset class’s sectors saw a relatively even spread of sales with Sterling Corporate Bond, Sterling Strategic Bond, and Global bonds posting £349m, £271m and £233m, respectively.

Money market funds also profited from Brexit panic with £410m of inflows, up from £157m during June, while the Targeted Absolute Return sector continued its popularity with £464m of sales.

The month – a baramoter on the impact of the UK’s decision to leave the EU – did provide some solace being a significant improvement on June’s record £3.5bn of net outflows.

June’s was the worst figure recorded under the IA’s new sales calculation system, which extends back to 2012 but was also worse than the £490m in redemptions recorded in October 2008 under the old sales formula.

Total net outflows for 2016 now stand at £4bn, a figure which potentially could be curtailed by fixed income, cash and absolute return strategy sales – especially given the former’s sharp rise in demand.

Guy Sears, interim chief executive of the Investment Association, said the rise in funds under management was due to equity markets recovering from a post-Brexit shock and bond yields pushed down to record lows.

He added: “Net retail sales were negative again in July with an outflow. However, this was markedly lower than the outflow experienced in June. UK retail investors remained cautious as they sold out of equity and property funds, favouring fixed income, mixed-asset and absolute return strategies.”