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Fixed income dominates sales as investors shun UK

Fixed income dominates sales as investors shun UK

Investors continued to flee UK equity funds in January choosing instead to buy bond funds, according to the latest Investment Association statistics.

The association's data, which covers the month of January, showed investors withdrew £532m from UK funds during the month.

This is almost twice the average level of withdrawals over the past year at £219m.

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The top selling equity sector during the month was global equity, which attracted inflows of £354m.

Region

Net retail sales in January 2018

Average net retail sales for previous 12 months

Global

£354 million

£491 million

Asia

£303 million

-£3 million

Japan

£295 million

£143 million

Europe

£286 million

£240 million

North America

£118 million

£103 million

UK

-£532 million

-£219 million

The biggest selling sector overall was IA Strategic Bond, which attracted inflows of £808m, while the global bond sector brought in £415m.

The increase in demand for strategic bond funds in January is stark.

The £808m of sales in January compared with £303m for the asset class in December.

The five fund platforms that provide data to the Investment Association (Cofunds, Fidelity, Hargreaves Lansdown, Old Mutual Wealth and Transact) saw net retail sales of £1.6bn in January.

The same five platforms had funds under management as at the end of January 2018 of £259bn, compared with £228bn a year earlier.

Laith Khalaf, senior analyst at Hargreaves Lansdown, said: "Investors have started the new year in much the same vein as they ended the last.

"UK funds continue to leak assets, while money is still pouring into global equities and fixed income. The antipathy towards the UK is now so long in the tooth one has to question whether sentiment is truly reflecting prospects for the UK stock market compared to its global peers.

"The UK fund sectors are home to many talented managers and UK companies have diversified international income streams, so investors should make sure they are not just following the herd if they are thinking about ditching their UK holdings and have considered reasons for doing so."

He said investors fondness for bonds is a "paradox" as investors continue to allocate capital to the bond market at a time when interest rates and inflation are both rising.

Adrian Lowcock, investment director at Architas, said: "Fixed income remains surprisingly popular as it is faced with a number of headwinds.  

"Although traditionally seen as a defensive asset class, bonds, particularly when they are low yielding, are very sensitive to higher inflation as we saw last year and rising interests which the Bank of England began at the end of last year.  

"The sell-off in the bond market came towards the end of January and, after a period of benign market conditions, it came out of the blue to surprise investors so is unlikely to have impacted demand for the sector in January.

"It will be interesting to see what the effect will be on investors behaviour in February."

david.thorpe@ft.com