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Investors continue run on low-risk assets

Investors continue run on low-risk assets

Investors are continuing to move funds to lower-risk assets as political uncertainty lingers and investor sentiment remains low, data from Morningstar has shown.

Analysis from the research platform, published yesterday (September 23), showed a continuation in August of the trend seen in the past five months where lower-risk assets experienced net inflows while money was pulled from higher-risk investments.

During August, £1.7bn was withdrawn from all funds — excluding money market funds — and equity and alternative funds led the net outflows.

For example, the data showed net inflows into fixed-income, money market and allocation funds (typically lower-risk investments) while equities, alternative funds and property funds, which are more market sensitive, experienced net outflows.

According to Morningstar, the trend had developed over the past five to six months.

Global broad category group net flows in the past six months (£billion):

The Morningstar data showed alternative multi-strategy funds saw the most net outflows in the month of August, while short term money market funds received the biggest net inflows.

 Total estimated net flows £milAssets
Global broad category groupAug 19Year to Aug 19£bil
Allocation612-3,710171
Alternative-1,502-16,75147
Equity-1,772-7,322665
Fixed income1,2531,157176
Property-2833352
Money market4432,95425

Morningstar put the trend down to low investor sentiment, where no clarity on the outcome of Brexit and wider concerns of a global slowdown had influenced investors’ confidence in the market.

It also noted the trend could be observed in the United States, in Europe (which in July had its highest monthly net inflows into fixed-income funds since Morningstar started collecting fund flow data in 2007) and more generally throughout the year across all geographies.

The research group stated this demonstrated it was not just UK investors who had been favouring lower-risk assets.

Darius McDermott, managing director at Chelsea Financial Services, said: "As the bull market has gone on for so long it’s no surprise investors have moved more cautious.

“With GDP slowing and Brexit overhanging, it’s consistent with investors acting more cautiously. Hence outflows in equities are expected and inflows into more low risk bond funds are to be expected.

“This could well continue for a good while given general uncertainty in the market.”

Paul Stocks, financial services director at Dobson and Hodge, thought there “must be a general perception that markets were due a fall” and that the aversion to property could be related to Brexit. 

But he said other than due to changes in client circumstances advisers would rarely make significant movements between asset classes given the view that allocation should reflect longer term aims and objectives, rather than “speculation of perceived short-term market directions”.

Paul Gibson, managing director at Granite Financial Planning, agreed. He said: “The client’s financial plan should inform the investment portfolio. As the plan will typically last decades short term reactions such as moving out of equities should be avoided.

“Short term ‘news’ or ‘events’ should be tuned out and the client should stick with their financial plan.”