Money flowing out of cash Isas on Hargreaves Lansdown’s Vantage platform has increased threefold over the past few months, despite the looming end of the tax year.
At a roundtable held by the advisers this morning, Mark Dampier, the head of research, and Meera Patel, a senior analyst, say that although they have reminded investors they cannot move back into a cash Isa and still take advantage of the tax benefits, clients have chosen to move out of low-yielding cash.
Most of the money has been switched to stocks and shares Isas, corporate bonds and even equity income funds.
Dampier adds that equities appear to offer good value, given how far earnings have fallen compared with historic levels.
He also rejects the idea that there is a bubble in corporate bonds, despite an influx of investor money into this area.
“I think corporate bonds were overvalued in 2003 and 2004 when you were not being paid to take the risk. You could get 4.5% on cash and 5% on corporate bonds, but for those 50 basis points, it is not worth the risk,” he says.
“Now there is a lot of money going into corporate bonds but there is not a case for bubble. We have to see clients going utterly mad about them and we have not seen that yet.”
Although Dampier is relatively upbeat on this asset class, he sees difficult years ahead and says people will reflect on this phase as the “great deleveraging period”.
“We have a huge mountain of debt, as governments and households have been living beyond their means for the past 10 years.”
He says the deleveraging process will take another five to 10 years, and blames the synchronised housing slump for the crisis.
Dampier credits central banks with an “extraordinary response” to the downturn, but worries too much may have been done, which could prolong problems.
“We have not ever seen such low interest rates before, and I think people expect cuts to feed through in three months, but it is actually more like nine months. The government has an election in May 2010, so is trying everything to get some green shoots of recovery through before then,” he says.
“They like to be seen to be doing things, but there is actually not a lot they can do. Time is the key, and some of the actions will actually make it worse.”
He explains that mortgage approvals and house prices have continued to drop, despite attempts to kick-start the housing market. Dampier says he would prefer to see the property market be allowed to bottom out rather than undergo more government intervention.
Equity income and bonds dominate Vantage