UK retail investors and advised clients withdrew £3.2bn from actively managed investment funds in the UK in 2019, equating to £615m a week for the year, according to data from the Investment Association.
In contrast, investors placed a net £18bn into tracker funds during the year. Of this, £8.9bn went into tracker funds that invest in equity markets.
Ben Yearsley, director at consultancy firm Fairview Investing, said: “We are experiencing a decade long bull run in equity markets, driven by quantitative easing. And it is very hard for an active fund manager to outperform that.
"So investors' liking for passives is partly driven by performance and partly by cost, everyone is obsessed with cost right now. I think the danger is people see a market going up, so buy more of what has gone up.
"But I think the move into passive funds has put the cash into the FTSE 100 and FTSE 250, but not the smaller companies and that may be a good area for active managers.”
Quantitative easing generally boosts the price of equities by lowering interest rates. This makes the income from cash relatively less attractive when compared with the income from equities.
Retail fund markets were buoyed in December, when what Investment Association chief executive Chris Cummings called a "Boris Bounce" happened and UK investors poured £3.6bn into funds, of which £1.3bn flowed into UK equity funds.
In fact the data showed 24 per cent of all inflows into UK shares in the year occurred in December — normally a very subdued month for investors.
Jason Hollands, director at Tilney, said: "A total of £1.3bn net inflows into UK equity funds by retail investors represented 35 per cent of all net flows during the month and came after £2.5bn of net outflows during the previous 11 months.
"The UK market is clearly seen as investible once again, having been widely shunned since 2016. A lot more cash could return into UK funds from here, given the scale of outflows seen since 2016."
The end of the year was also positive for ESG funds, which attracted net inflows of £1.3bn into the funds in the final three months of 2019. This compared compared with £190m in the first three months of the year.
Adrian Lowcock, head of personal investing at the Willis Owen platform, said: “Today’s figures from the Investment Association would seem to be a vote of confidence from British investors that markets are getting back to normal after the tribulations of the past few years.
"Investors piled back into UK equities last year ending a long-running period of outflows. In particular, the UK retail fund market enjoyed a post-election uplift from the Conservative election victory. UK savers invested £15bn into the UK retail fund market, a two-fold increase from 2018’s flows of £7.2bn.”
david.thorpe@ft.com
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