Investors pull £700m from equity funds in January

Equity funds seem to head back to the gloomy period of last year as they saw large outflows of nearly £700m in January, according to latest Investment Association figures.

Investors have been more cautious in the first month of the year having pulled £697m from equity funds. This follows a small lift in November and December after a year of consistent outflows for a total of more than £7bn until October.

UK and European equity funds suffered the most by shedding £505m and £399m respectively, while Global Equity and North American equity funds were the best-selling in January with net retail sales of £225m and £98 m respectively.

The best-selling sectors in January were the most defensive ones with targeted absolute return funds reaching net retail sales of £297m and fixed income funds collecting £231m.

January was the fourth consecutive month where investors opted for targeted absolute funds.

IA fund market specialist Alastair Wainwright says:”The momentum of inflows into equity funds toward the end of 2016 did not carry through to the New Year.

“Global and North American focused funds were the only positive equity regions in January as investors sought to take advantage of the ‘Trump Trade’ and the new administration’s expected relaxation of regulation in the US.”

“For the fourth month in a row Targeted Absolute Return was the best-selling sector, largely due to discretionary fund managers allocating to the sector. Sterling Strategic Bond was the second best selling sector as, with the exception of a small outflow through the direct sales channel, it received positive net sales through all retail distribution channels.”

Overall, total net retail sales dropped dramatically to £366m in January from £2.6bn in December, which was the best-selling month in a challenging year for fund flows.

IA chief executive Chris Cummings says it is not surprising to see sales “somewhat subdued” in January following the record numbers in December.

Architas investment director Adrian Lowcock says: “Today’s figures add weight to the story that this is possibly the most unloved bull market on record. Markets have been in a bullish mood roaring ahead as they optimistically price in all of Donald Trump’s campaign promises and have brushed aside Brexit fears as economic data and corporate earnings have improved.

“However, individual investors have remained concerned over the future. There remains a lot of uncertainty, there is a lot of political risk in European elections, Brexit negotiations and Trump’s presidency. As such investors are being fairly prudent taking some risk off the table when markets are around new highs.

“At this point markets are pricing in much of the potential  good news but very little of the risks facing markets. It is far better to buy a bit of protection when markets are riding high then after a sell-off.”