Targeted Absolute Return funds were the most popular sector with UK investors over April for the third month in a row, with net retail sales of £742m, reports the Investment Association (IA), the body that represents UK investment managers. The figures reflect investor caution amid choppy markets, and uncertainty over issues such as the upcoming UK referendum on whether to stay in the European Union, and the direction of US interest rates.
As a result, bond funds were also popular with Sterling Corporate Bond and Sterling Strategic Bond the fourth and fifth most popular sectors, with respective net retail sales of £205m and £191m in April. Fixed-income funds were the most popular broad asset class with sales of £679m, while equity funds experienced a net retail outflow of £635m.
The worst-selling IA fund sector in April was UK All Companies with a net retail outflow of £669m. Investors were cautious on the UK, which overall experienced an outflow of £310m, albeit less than Japan funds with an outflow of £428m and Europe funds with an outflow of £507m.
However, UK Equity Income was still the third best-selling sector with net retail sales of £342m. Sales of this sector have been boosted over the last couple of years by CF Woodford Equity Income Fund (GB00BLRZQB71), which, for example, was the most traded fund on The Share Centre platform over April for the 12th month in a row, and was among the top 10 funds purchased via Hargreaves Lansdown over April.
It comes as Woodford Investment Management considers launching a new fund with a higher income than CF Woodford Equity Income, which has a 12-month yield of 4 per cent.
The new fund would only invest in quoted companies, mainly in the UK, but without geographical restriction.
"The existing fund may have better total return prospects thanks to the inclusion of small unquoted companies which, while riskier, have lots of growth potential," said Laith Khalaf, senior analyst at Hargreaves Lansdown. "A new fund would allow investors to choose whether they prefer to focus on total return or income, or indeed hedge their bets with a bit of both.
"If the new fund invests without geographical constraints that could also open up new opportunities for the manager [Neil Woodford]."
Meanwhile, Baillie Gifford has recently launched a Japan income fund. Japan is not traditionally associated with income, but companies are being encouraged to give greater consideration to their shareholders. In 2013, the JPX-Nikkei 400 Index was launched and the inclusion criteria is based on three-year average returns on equity, operating profit and market value in order to identify those expected to deliver the best shareholder value.
"We are seeing improving attitudes to corporate governance in Japan," explained Matthew Brett, manager of Baillie Gifford Japanese Income Growth. "Shareholder payouts are increasing and there is scope for this trend to continue for many years. Our new fund aims to generate strong long-term total returns as well as provide investors with a higher yield than the Japanese market."
Baillie Gifford Japanese Income Growth currently yields 2.5 per cent. It will follow the same process as Baillie Gifford's existing growth-focused Japan funds, which include IC Top 100 Funds Baillie Gifford Japan (BGFD) and Baillie Gifford Shin Nippon (BGS). It will seek good-quality businesses with strong prospects for earnings growth, with a bias to income.
Until 30 September investors in Baillie Gifford Japanese Income Growth will have access to a Y share class with a annual management fee of 25 basis points for the first 12 months, which rises to 65 basis points after 12 months, resulting in an ongoing charge of 0.75 per cent.
