Bonds  

Reversal of fortune for bond funds as volatility presents opportunity

Reversal of fortune for bond funds as volatility presents opportunity
 

Retail investors rushed back to fixed income funds at the end of last year after volatility in the sector led to low prices and investment opportunities.

Some £1.3bn was invested on a net basis in UK fixed income funds in November, compared with a total of £1.1bn withdrawn in September and October, according to the Investment Association.

Corporate bond funds were the most popular asset class in the month for retail investors, with £958mn in inflows, followed by global inflation-linked bond funds (£205mn) and government bond funds (£138mn).

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Bond markets performed poorly in the first nine months of the year due to rising interest rates and stubborn inflation, with bond yields soaring in the UK in particular due to the fallout from the “mini” Budget in October.

Funds Under Management  

Net Retail Sales  

Net Institutional Sales  

 

November 2022   

£1.4tn 

£389mn

-£6.1bn

November 2021 

£1.6tn 

£2.5bn

-£736bn

Source: Investment Association

The next month, fixed income markets stabilised after a change in government, and the high yields and low prices led industry commentators to push the attractiveness of this sector. 

“The large repricing experienced since the beginning of the year - and particularly since the 'mini' Budget - has created the best buying opportunity in UK short-dated bonds since 2008,” Nicolas Trindade, a senior portfolio manager at AXA Investment Managers, said in November

Overall, UK funds saw £389mn invested in November, the first month of net retail inflows since April.

Equity funds saw net redemptions slow to £486mn in November, from £2.3bn in October and £4.9bn in September, which was the second worst month for UK retail funds on record.

The rout in investment in UK funds continued with investors pulling £1.1bn, and European funds saw net redemptions of £834mn.

Some £17.7bn was withdrawn from UK equity funds in the 11 months to November.

Chris Cummings, chief executive of the IA, said the outlook for investors remains challenging.

“Positive inflation data from the US buoyed market expectations that across the pond, the green shoots of recovery are emerging, [but] overall, there are still choppy waters ahead and investors will need to see what the New Year brings.”

sally.hickey@ft.com