Last year has seen the second highest level of investment into UK retail funds as investors took advantage of the post-Covid economic boom.
Some £43.4bn was invested in 2021, approaching the record £48.6bn for the highest net retail fund sales seen in 2017, according to the Investment Association.
But not all asset classes did equally well, with UK equities in particular suffering heavy outflows.
Chris Cummings, chief executive of the IA, said investors put their lockdown savings to work last year, helping them take part in the Covid-19 market bounce-back.
“This was particularly so in the first half of the year, when monthly inflows into funds peaked at £6.2bn at the end of the 2021 Isa season in April.”
Net UK retail fund sales
Retail fund sales
Source: Investment Association
“While new variants of Covid-19 appeared throughout the year, every month of 2021 saw net inflows - against a backdrop of rising prices eroding the value of saving in cash,” Cummings added.
Significant levels of inflation in the second half of the year “made its mark” on flows into bond funds, he added.
Flows to fixed income funds dropped from £4.7mn in Q1 to £1.3mn in Q4, when inflation began to take heed.
But overall, Cummings said, investor confidence remained resilient, and December saw continuing net sales of £2.3mn, compared with £2.5mn in November.
“Growing focus on climate change in the year Glasgow hosted COP26 also helped take flows into responsible investment funds to new heights,” he said.
Inflows into responsible investment funds rose dramatically last year, topping £16bn, up from £4.3bn in 2020.
Active funds saw the majority of inflows, with £25.2bn invested, compared with £18.3bn into tracker funds.
However, UK equity funds suffered record outflows of £5.3bn, £1bn of which was in February alone, which was larger than the previous record of £4.9bn in 2016, when the UK voted to leave the European Union.
Investors have shunned the UK market since the EU Referendum in 2016, said Laith Khalaf, head of investment analysis at AJ Bell.
“This trend shows no signs of abating, despite the cyclical value stocks which populate much of the Footsie having an improved year in 2021,” he added.
Emma Wall, head of investment analysis & research at Hargreaves Lansdown, said it was good to see so many investors putting their money into equity funds, however she said the real test would be the coming 12 months amid expectations of increased market volatility and potential negative returns.
“Investors should hold tight, remain focused on their long term goals and ensure that their portfolios are diversified across asset classes, geographies and styles to help mitigate losses,” she said.
“Early signs from our top fund buys in January on the Hargreaves Lansdown platform show that investors are doing just this, with a mix of multi asset, equities and commodities funds making the top ten.”