Equity fund outflows dampen £1.7bn retail sales surge


Equity funds have missed out on the £1.7bn net retail sales for UK products in the month of August, instead suffering £629m of outflows, according to the latest Investment Association figures.

In contrast, fixed income saw £1.2bn of inflows.

The flows figures comes as the FTSE 100 continues to rally, edging towards 7,000 on Monday as the pound plunged in response to Prime Minster Theresa May setting a Brexit deadline.

Hargreaves Lansdown senior analyst Laith Khalaf says bond funds were the winners from the post-Brexit fund bounce, despite the asset class yielding very low.

“Investors clearly decided not to fight the Old Lady of Threadneedle Street, and to just go with the flow.

“That has certainly been the right call since quantitative easing was introduced seven years ago, though bonds are yielding ever less, while monetary policy is surely bumping up against the law of diminishing returns.”

Equity outflows, which were led by European and specialist products, have slowed from £2.2bn outflows in July. For the same month last year, equity funds experienced £890m.

European and the UK equity funds lost £297m and £162 respectively.

Tilney Bestinvest managing director Jason Hollands agrees with Khalaf but says bonds might not look as appealing as they used to be in the next months.

He says: “With share price valuations looking quite rich across most developed markets, caution by investors is understandable but with bond yields at very low levels, indeed negative in some cases, traditionally defensive asset classes are also unappealing and may not prove quite the safe haven many assume.

“The gush of liquidity provided by central banks in recent years has led to a very high degree of correlation in equities and bonds and this could in turn also lead to a synchronised sell-off at some future point.”

The most popular sector in August was Targeted Absolute Return, which saw £480m of inflows.

Overall, industry funds under management reached a record high of £1trn in August, but IA chief executive Chris Cummings warns that caution remained a trait among investors.

He says: “Net retail sales were £1.7bn [in August], reversing the Brexit related outflows of the past few months. However, caution is still evident as retail investors continue to prefer fixed income and absolute return strategies to traditionally more risky equity products.”