UK investors continued to flood into government bond funds in May, taking advantage of higher interest rates.
Some £658mn was invested into the funds, a 357 per cent increase on the £144mn invested in April, according to data from the Investment Association.
Bond prices crashed last year after central banks hiked interest rates at high speed, pushing up yields and ending a decade of ultra-low returns in the sector, meaning that investors can gain similar returns from less risky investments.
AJ Bell chief executive Michael Summersgill recently told FTAdviser's sister title the Financial Times that he has never seen the current level of gilt and fixed income purchases by UK retail investors.
Nearly £1bn was pulled out of equity funds in the month on a net basis, with the majority of the funds coming out of UK equity funds (£1.2bn).
| Funds Under Management | Net Retail Sales | Net Institutional Sales |
May 2023 | £1.38tn | £356mn | -£2.76bn |
May 2022 | £1.46tn | -£921mn | -£3.89bn |
Source: Investment Association
European equity funds saw net outflows of £65mn, Japan funds saw £134mn withdrawn and North America funds saw £336mn in redemptions.
Global and global emerging market equity funds and Asia Pacific excluding Japan were two out of a small number of IA equity fund sectors that saw net investment in May.
Tracker funds continued to be popular, registering net investment of £1bn in May, compared with £1.5bn in April and £1.3bn in May 2022.
Chris Cummings, chief executive of the IA, said “caution” was the theme of the month.
“This is not surprising given concern about potential global recession and ongoing conflict in Ukraine.
“Investors continued to diversify their equity portfolios, with continued inflows into global equity funds.
“The UK remains unloved amidst persistent outflows.”
Emma Wall, head of investment analysis and research at Hargreaves Lansdown, said it was “hardly surprising” investors were buying government bonds given the central bank action over the past year.
“After years of only being offered attractive yields on equities and alternatives, high inflation has forced the Fed, Bank of England, ECB and other central banks across the globe to hike rates, offering investors the chance of a decent rate of interest on cash, and in turn government bonds,” she said.
“While equity markets continue to rally, it is notable that investors are hedging their bets, pursuing two distinct investment strategies – buying US funds and growth-biased equities alongside money market funds, gold and gilts. Cash savings continue to attract significant flows too.”
“These investor patterns reveal the confusion of navigating a seemingly disconnected market and macro.”
sally.hickey@ft.com
