Just over £28.9bn has been invested in UK retail funds in the first seven months of 2021 on a net basis, compared with the high of £48.6bn for the whole of 2017, according to data from the Investment Association.
Net retail fund sales jumped threefold in November last year as the successful trials of the first Covid vaccines were announced, and inflows have remained buoyant since then.
Around £3.5bn was invested in May this year, with £4.4bn in June and £4.8bn in July.
Laith Khalaf, financial analyst at AJ Bell, said there has been an air of economic optimism about the global economy since the start of the year.
“There have [also] been fears of inflation, and if you’re fearful of inflation you need to be in real assets like equities,” he said.
“We’ve also got the backdrop of very low interest rates. We also know that a good number of people were able to put away lots of money last year and they’re sitting on cash piles, so there’s probably some dry powder effect there as well.”
Tom Sparke, investment manager at GDIM, agreed.
“After the 18 months we’ve had, there are a lot of pent up savings that people are finally starting to do something with," he said.
“People are going out and seeing their advisers for the first time in a long time and they’re going to feel more confident to [invest], especially if they’ve heard the returns seen in the past year have been fantastic.”
He added that markets continued to offer good value, and noted earnings were buoyant.
“A lot of the companies we thought might be struggling earnings-wise are still doing well, and monetary policy is still loose,” he said.
Sector performance
Global funds top the list so far this year with net inflows of £7.7bn, with inflows of over £1bn seen in February, March and April, and again in June.
The Mixed Investment 40-85% Shares sector has seen the second highest level of net inflows, with £5.1bn invested so far this year.
Khalaf said a number of reasons were behind the popularity of global funds.
“[Global funds are] the kind of first port of call for an investor because it diversifies you across the whole global market, even though two thirds of that is actually in the US," he said.
“There are [also] some very big and popular funds in the global sector, including Fundsmith, Baillie Gifford’s suite of funds and Lindsell Train Global Equity, which have very firm customer bases and have performed very well.”
He added the other factor that will have contributed to the success of global funds was the ESG trend.
“A large amount of investments are going into funds, and a significant proportion of that has been going to ESG funds, and the bigger of those tend to be global funds," he said.
Sparke said the Mixed Investment 40-85% Shares sector remained a perennial source of investor interest, irrespective of what goes on in the markets.
“Whenever we talk to advisers that’s always the biggest, as it tends to be the most popular one for investors," he said.
In recent weeks China in particular has borne the brunt of a variety of investor worries. But global emerging markets and Asia ex-Japan funds have enjoyed the third and fourth largest inflows in the seven months to July, each amassing just over £1bn in inflows since the start of the year.
Sparke added those investors remained focused on the potential for big, long-term growth.
“There is massive growth in emerging markets which is probably the lure for that, and we’re not getting big growth rates elsewhere.”
Future uncertainties
Looking to the future, Khalaf hinted at more uncertainty.
“I think we’re in a bit of a funny time,” he said.
“I get the feeling there is a greater hesitancy amongst professional investors and a little bit less optimism than at the beginning of the year - it was very easy to be optimistic at the beginning of the year given how bleak the situation was [in 2020].”
He added there are now a number of more difficult questions flying around, including those regarding the permanence of inflation, and the impact of supply chain issues and rising gas prices.
“The big thing which will be hanging over markets for a while is the approach of central banks,” he added.
“The whole market knows they are going to tighten policy at some point...it feels like as long as the central banks have been pumping liquidity into markets, there’s a game of musical chairs going on.
“Every time we get to a point like this, where the music starts to die down a little bit, everyone starts getting edgy and looking at chairs.”
sally.hickey@ft.com
