At what point does the mass withdrawal of funds from UK equities become something akin to a crisis of confidence?
So far, the word crisis has not been used too frequently in this context.
Amid the wider political climate, it is refreshing that asset managers, trade bodies and investors have not been too hasty with their language.
But some plain figures show that, should the trend since the referendum continue in the same vein or accelerate, the regulator and even the government might need to consider what steps, if any, might help stem the outflow.
British savers have pulled £11.4bn from UK equity sectors since June 2016, according to the Investment Association.
The association’s data also shows that during February alone, retail investors withdrew £236m from UK equity funds, and the average net retail outflows from UK equity funds since the Brexit vote are around £345m a month.
The IA has been one of many voices calling on the government for certainty, to at least decelerate the trend.
It is not an exaggeration to say the IA’s figures reflect material damage. Lobbying aside, alarm bells were ringing out long before the association’s most recent data.
Back in December 2018 (a long time in modern politics), when retail investors withdrew £315m from property funds, the Financial Conduct Authority began daily monitoring of outflows from funds available to individual investors.
The great suppression
Asset managers, advisers and investors all have plenty of evidence to illustrate the cascading effect of outflows. But they also believe this opens up options.
Chris St John, portfolio manager at Axa Investment Managers, says withdrawals have been significant since June 2016 as allocators have increasingly allocated assets to global equity funds.
“As a consequence,” he adds, “UK valuations remain depressed relative to their own history, reaching a 30 per cent discount and 30-year nadir compared with global equities.
“UK equities remain unloved and underowned, but we believe this presents opportunities for investors. While politicians dither, many UK listed companies continue to combine their earnings, cash flows and dividends.”
But there remains a question over prospects for fixed income investments, which Nicolas Trindade, portfolio manager at Axa Investment Managers, seeks to answer.
“We expect the appetite for sterling fixed income assets over the long term to remain appropriate despite the political situation, as UK insurers and pension funds have a natural demand for domestic fixed income assets.”
Mr Trindade believes the main risk lies with foreign investors who may reduce sterling fixed income holdings further, should the political situation deteriorate.
He adds: “In the meantime, the appetite remains healthy as highlighted by the strong demand for new bond issues from UK retailers.”
Industry views are therefore by no means a consensus of pessimism, particularly as retail might have been perceived as an unloved sector.
Stuart Clark, portfolio manager at Quilter, is also fairly sanguine about the outlook.